On today’s TSX Breakouts report, there are 51 stocks on the positive breakouts list (stocks with positive price momentum), and 23 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that began trading on the Toronto Stock Exchange in December.
The share price has rallied over 50 per cent above its initial public offering price (IPO) that was set just two months ago. With its seasoned management team, the company has delivered consistent revenue growth and has a steady EBITDA margin. The security highlighted today is Andlauer Healthcare Group Inc. (AND-T).
This small-cap healthcare stock is one that I anticipate will appear on the positive breakouts list in the future once it has a longer trading history.
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Vaughan, Ontario-based Andlauder is a leading supply chain management company focused on serving the highly regulated healthcare industry. Through its 33 facilities (28 temperature-controlled facilities and five third-party owned cross-docks) located across Canada, the company provides inventory management, packaging, and distribution of pharmaceutical products. In terms of its 2018 revenue breakdown, 54 per cent of the company’s sales came from ground transportation, 28 per cent of sales came from logistics and distribution, 7 per cent was from packaging solutions, 6 per cent was from air freight, and 5 per cent was from last mile delivery.
Among its clients are large pharmaceutical manufacturers including Pfizer, Celgene, Shire, GSK, Bayer, Roche, Novartis, Merck and Gilead. The company has long-standing relationships with its clients, serving its top 20 clients by revenue for over 15 years, on average.
Tailwinds for the company include the aging population who are high users of pharmaceutical products, as well as rising industry regulations by Health Canada. In the prospectus, the company said, “Technavio estimates that the North American outsourced healthcare logistics and transportation market will grow at a 5.8 per cent CAGR (compound annual growth rate) from 2018 to 2023.”
The company is profitable and has delivered steady revenue growth over the years. Looking back to 2010, its revenue has grown at a compound annual growth rate of approximately 10 per cent. Between 2010 and 2018, the company reported revenue of $133-million (2010), $144-million (2011), $159-million (2012), $176-million (2013), $200-million (2014), $208-million (2015), $224-million (2016), $251-million (2017) and $277-million (2018), and $215-million for the first nine months of 2019. Revenue is fairly steady throughout the year as there is limited seasonality in the company’s operations. In addition, the company has reported a stable EBITDA (earnings before interest, taxes, depreciation and amortization) margin, 23.5 per cent in 2016, 23.1 per cent in 2017, and 23.2 per cent in 2018. For the first nine months of 2019, the EBITDA margin stood at 24.5 per cent.
Management’s core objectives include expanding its operations with its existing clients, winning new clients, and acquisition growth, identifying the highly fragmented U.S. market at a potential growth opportunity. The company is expanding its distribution space with roughly 200,000 additional square footage in the Greater Toronto Area expected to be completed later this year. The company has a healthy balance sheet to fund its growth objectives. The debt-to-last 12-months EBITDA ratio stands at under 2 times.
In December, the company completed its initial public offering (IPO) and over-allotment option, issuing shares at an IPO price of $15 per share.
President and chief executive officer Michael Andlauer through AMG (Andlauer Management Group), a corporation owned by him, retained a large ownership position in the company. After the offering, he owns approximately 67 per cent of the shares outstanding, aligning his interests with the interests’ of shareholders.
Dividend policy
The company anticipates paying its shareholders a quarterly dividend of 5 cents per share, or 20 cents per share yearly. This equates to a current annualized yield of approximately 0.9 per cent.
The inaugural dividend will be paid to shareholders on record as of March 31.
Analysts’ recommendations
There are three analysts that cover this small-cap stock with a market capitalization of $861-million. All three analysts launched coverage on the company with buy recommendations.
Firms providing research coverage on the company are: CIBC World Markets, RBC Dominion Securities, and Scotiabank.
BMO Nesbitt Burns, National Bank Financial, TD Securities and GMP Securities also acted as underwriters so I would not be surprised to see additional analysts launch coverage on the company in the future.
Financial forecasts
The consensus revenue estimates are $292-million in 2019, $313-million in 2020, and $336-million in 2021. The consensus EBITDA estimates are $69-million in 2019, $72-million in 2020 and $79-million in 2021. The Street is anticipating the company to report earnings per share of 83 cents in 2020 and 91 cents in 2021.
Valuation
The stock is trading at an enterprise value-to-EBITDA multiple of 11.4 times the 2021 consensus estimate.
The consensus one-year target price is $22.83, implying the stock price is fully valued. Individual target prices in numerical order are as follows: $22.50 and two at $23.
Chart watch
The stock began trading on the Toronto Stock Exchange on Dec. 11, 2019. Given the stock’s brief trading history, technical analysis is limited.
Year-to-date, the share price for this healthcare stock is up 14 per cent, and is 53 per cent above its initial public offering price of $15.
Liquidity can be low for this stock, which can create price volatility. The daily average trading volume is roughly 109,000 shares.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
Jennifer Dowty