Research Flash - Quipt Home Medical Corp. (QIPT:TSXV,$6.45|BUY $13.00 TARGET) Hometown Medical Acquisition
This morning, Quipt Home Medical announced that it has acquired Hometown Medical, LLC. Hometown Medical is a respiratory DME provider based in Mississippi offering high quality full-service equipment and supplies. The acquisition marks Quipt’s third acquisition in the last two months and fifth acquisition in CY2022, executing incredibly well on the crux of our investment thesis (its accretive roll-up strategy). Hometown Medical has two locations in Mississippi, adding to QIPT’s existing two locations in the state. Mississippi represents a state with high prevalence of COPD, with the National Institutes of Health estimating that 211K people in the state are diagnosed with COPD. Furthermore, the CDC identified Mississippi as one of seven states with the highest estimates of COPD diagnosis, hospitalizations, and deaths. The target company’s business is heavily weighted to respiratory products, representing 60% of its product mix. This provides QIPT with the opportunity to build out a ventilation therapy program and integrate its subscription-based resupply program for Hometown’s patient base. The acquisition adds over 1,000 referring physicians and 11,000 active patients, bringing Quipt’s totals to 21,600 referring physicians and over 200K active patients. Hometown Medical has a diversified payor mix and several important insurance contracts, which have been a key component in all QIPT acquisitions.
The acquisition is expected to increase QIPT’s annual revenue by US$7.0M and increase adjusted EBITDA by US$1.4M post integration. The acquisition was in-line with QIPT’s previous acquisition multiples of 0.7-1.0x trailing sales. We remind readers that QIPT ended Q2/22 with US$17.4M in cash and US$20.0M in undrawn credit, providing ample dry powder to continue executing on its M&A roll-up strategy. Furthermore, Quipt’s credit facility can be upsized to US$100M if QIPT needs additional capital for large-scale M&A. We continue to expect QIPT to execute on its roll-up strategy (at <1.0x sales) and take advantage of the favourable reimbursement environment to post 8%+ annual organic growth. We are maintaining our BUY rating and target price of $13.00/share based on 9.0x 2023E adjusted EBITDA.