Skylight Health Group (TSX:SHG)(OTC:SHGFF)

This Severely Undervalued Company Has a Significant Trillion-Dollar Opportunity in the US Healthcare Market

News Update
Skylight Health to Add 16th State with Acquisition of Florida Clinic Group with $5 million in Revenue and $1.2 million EBITDA

Skylight Health Group Inc. formerly CB2 Insights Inc., is a healthcare services and technology company, working to positively impact patient health outcomes. The Company operates a US multi-state health network comprised of physical multi-disciplinary medical clinics providing a range of services from primary care, sub-specialty, allied health, and laboratory/diagnostic testing. In addition, the Company owns and operates a proprietary electronic health record system that supports the delivery of care to patients via telemedicine and other remote monitoring system integrations. With a patient roster of over 120,000 patients, the Company’s operations spread across 14 states and continues to expand in services and locations both organically and by way of strategic acquisitions.

  • Skylight Health Group is one of the largest, yet most undervalued medicine providers
  • Skylight’s 3-Pronged Growth Strategy gives it access to the multi-trillion dollar healthcare insurable services industry
  • Mackie Research analyst Yue Ma believes Skylight is more undervalued than its peers, and initiated coverage with a “speculative buy” rating with an approximate $1.10 price target.(3)
  • Skylight Health Group’s stock could have further upside as it breaks higher from consolidation around 45 cents.

If the pandemic has shown us anything, it has shown us that the U.S. healthcare system is in tatters. It’s fragmented, has disorganized infrastructure, and is unsustainably expensive. In fact, total national health expenditures have increased to approximately $3.6 trillion and growing approximately 4% annually. Additionally, between $760 billion and $935 billion of these expenditures are considered wasteful spending- good for around 25% of annual healthcare expenditures.(4)

Further exposing how broken the healthcare system is, the average primary clinic is overloaded with 19+ patients a day. Making matters worse, only about 55% of recommended preventative services are being delivered to patients. There is also a shockingly low amount of patient care coordination between visits, and there is limited access to other services such as home-based care, medication management, and behavioral health.(4)

This is where Skylight Health Group (TSX:SHG)(OTC:SHGFF) comes into play.

Skylight Health’s goal is to combine traditional care services, including primary & urgent care, sub-specialties and laboratory/diagnostics with wellness services including chiropractic, physiotherapy and other allied health treatments – which includes the treatment of chronic and mental health conditions.

In addition, the company is providing fee-for service insurable services to patients who are enrolled with Medicare, Medicaid, Affordable Care Act, and other commercial groups, in addition to those that are uninsured.

Fee-for-services include delivery of care in-clinic and via telemedicine where applicable. Services include primary care, urgent care, sub-specialty, allied health and wellness and laboratory/diagnostic offerings. The Company currently owns a proprietary electronic medical record system and virtual telemedicine platform, as well as over 30 physical clinics in 14 States.

Even more interesting, Skylight’s roadmap follows these key principles:

  1. The Primary Care physician network remains at the center of each clinic’s operations. The management and support of patients begins with the foundation of a family doctor who knows and understands the patients’ needs and health goals.
  2. Skylight’s multi-disciplinary clinics focus on services built around the needs of a primary care patients. SHG will bring those services and specialists in-house via in-clinic or telemedicine services where applicable.
  3. All outpatient medical needs are centralized, keep them all under one roof. In doing so, this model is believed to help reduce the cost of healthcare for public and private health, and help improve overall health outcomes.

Plus, while Skylight’s primary focus is U.S. healthcare services, it’s also working towards better health outcomes with its involvement in data and health analytics, and clinical research services. That’s in addition to company efforts to establish contracts with leading pharmaceutical and biotech companies to support their clinical research needs in the US.

There’s Big Demand for Better Healthcare Management

According to Mackie Research:

“Approximately 33M Americans remain uninsured mainly due to high costs of insurance coverage, most of which are in low-income families and have at least one worker in the family. People without medical insurance have worse access to care than people who are insured. Those uninsured often face unaffordable medical bills when they seek care. Addressing the high uninsured rate is believed to be an urgent and unmet need in the U.S. health care system.”(5)

This demand has created a significant opening for Skylight Health Group. Skylight Health could be one of the largest, and most undervalued integrated health system stocks in the U.S. By far.

In fact, while Skylight Health Group traded at just about 59 cents at 5.8x EV/revenue(7) look at how overvalued some of its prime competitors were:

  • In Oct. 2020, Oak Street Health traded at approximately $69.11 at 15.4x EV/revenue.
  • 1Life Healthcare traded at approximately $41.95 at 11.3x EV/revenue.
  • WELL Health Technologies traded at approximately $7.59 at 26.6x EV/revenue.

This seems to truly illustrate how much the market is undervaluing this promising stock.

However, with Skylight’s 3-Pronged Growth Strategy, it’s hard to foresee this company trading at a discount for much longer:

Expansion of Services to Current Patient Base

  • Over the next 12 months, the Company expects to see robust growth as it expands its medical services to include traditional and conventional treatments alongside its current alternative focused approach to its over 100,000 patient base in the US.
  • Over the next 12 months, the Company expects to begin reopening its clinics shut down due to the COVID-19 pandemic in March 2020. The clinics reopening beginning in Q1 2021, could enable SHG to begin with primary care services for its existing roster of patients.
  • The Company currently earns on average $150 per patient per year based on 1 visit per year. With the expansion of primary care, SHG expects 3-4 visits per year per patient on average resulting in improved services for patients, and an improvement in the overall patient economics largely reimbursed through insurance payors.
  • The Company claims to also look to identify and incorporate complimentary services within its existing established primary care offices to build on the number of insurable services for patients of the practice. In alignment with the multi-disciplinary model, SHG is said to create more value for patients existing and new, while improving on the patient economics with each additional service and visit.
  • Patients will continue to be supported via telemedicine for services that can be delivered with the necessary standards of care remotely.
  • The Company also expects to be able to begin administering the COVID-19 vaccine(s) once available for patients in the US through its physical clinics.

Subscription for Un/Under-Insured Patients

  • Through its subscription service, the Company expects to enter an addressable market of 40 million Americans largely underserved due the high cost of healthcare in the US. This disruptive model has already begun to see traction with patients already showing strong demand in the States where the Company has begun launching its services. The Company is working closely with strategic partners in the US to develop key messaging and marketing metrics that will enable it to scale its marketing efforts over the next 12 months in this niche segment
  • Within this product offering, anyone who is under or un-insured can subscribe to an annual subscription for $199 per year for unlimited access to a SHG telehealth provider for urgent care needs.
  • The Company is believed to expand this offering within existing States over the next 12 months and will look to add new States in following periods. Since the subscription model works with existing SHG providers, largely salaried within the existing business model, the Company will be able to profitably provide this service to patients.
  • Additionally, this product targets a highly unaddressed population that may continue to see further impact due to large unemployment numbers resulting from job-loss caused by the pandemic.

Acquisitions

  • The primary care sector in the US continues to remain highly fragmented with majority of consolidation done by regional and localized healthcare networks. This creates a large opportunity for national groups like SHG who have demonstrated success as consolidating these clinical groups to see transformative revenue growth over the next 12 months.
  • The Company has already acted on this opportunity with the announcement of the acquisitions of 2 clinic groups in Texas and Washington, and a third group in Colorado expected to close early Q1 2021.
  • The Company continues to expand on its robust pipeline of acquisition targets and with recent profitability, cash on its balance sheet, and strong support from its investor base, is well positioned to continue executing on its acquisition strategy.
  • Each acquisition could result in immediate revenue and profitability recognition. There are over 200 deals at any given time in the market and growing. The Company does not see either a shortage of pipeline opportunities, or valuation pressure typically seen in highly competitive markets or when inventory is low.
  • The additional value add with each acquisition is brought on by management’s demonstrated ability to improve on costs and drive new top line revenue growth from same and new services expanding on the patient economics.

Is there further upside ahead for Skylight Health Group (TSX:SHG)(OTC:SHGFF)?

The potential is certainly there, and analysts know it.

Mackie Research analyst Yue Ma, for example, believes that Skylight is undervalued relative to its peers. So much so that he just initiated coverage with a “speculative buy” rating and an approximate $1.10 price target.

“The company is a “fast-growing healthcare services and technology company which has opportunity for organic and inorganic growth.”

On the organic side, Ma also says Skylight Health Group has an “enormous” market of 33 million uninsured Americans. Inorganically, the company also expects to continue acquiring primary health clinics in a highly fragmented market.

“We expect [Skylight Health Group] to transform its newly acquired clinics to provide both onsite and telemedicine services. [Skylight Health Group] has built a pipeline of accretive acquisition targets that have generated combined annual revenues of over $10M and annual profits of $2M million –the company is currently in negotiations in three potential transactions. We believe Skylight Health is disciplined in acquisition metrics – the company is looking for a price in the range of 0.3x – 0.75x revenues,” Ma wrote.(8)

“We believe the company is still undervalued compared to its peer companies in the primary care/telemedicine sector. Based on our financial estimates, the stock is currently trading at approximately 5.9x 2020 EV/Sales ratio (vs. approximately 19.4x for the sector) and approximately 4.0x 2021 EV/sales ratio (vs. approximately 11.9x).”(8)

Skylight Health Group (TSX:SHG)(OTC:SHGFF) Just Posted First EBITDA-Positive Quarter

Skylight Health Group’s financials also are improving and show signs that the company is growing. In fact, just last quarter, Skylight recorded its first EBITDA-positive quarter in company history. Its adjusted EBITDA was 37 cents in Q2 2020 compared to an EBITDA loss of 79 cents year over year.(9)

Improvements to the company’s operating model and top-line growth are to be thanked for this staggering change in the last year.

Total revenue for Q2 2020 was $3.7 million, compared to $3.2 million from Q2 2019, and gross profit was $2.6 million in Q2 2020 compared to $2.1 million from Q2 2019; an increase of around 22.8%.

In addition, according to Prad Sekar, Chief Executive Officer:

We are extremely pleased to see the strong demand and participation from fundamental investors through the efforts of our syndicate. We are in the early stages of our growth and have already seen the execution of two highly accretive acquisitions during the second half of this year.” said Prad Sekar, CEO of Skylight Health Insights. “With the additional capital, we expect to deploy further capital to both organic growth initiatives, but also to a growing pipeline of acquisition targets that will continue to expand our reach across new states and add new layers of insurable services for our patients. With the return to in-person clinics in 2021, we are excited to be met by expectations of positive demand from our patients seeking in-clinic services currently not able to be delivered in a telemedicine-only environment.”(10)

Skylight Health Group (TSX:SHG)(OTC:SHGFF) is Technically Attractive

Over the last three months, the stock popped from a low of around 10 cents to around 61 cents- good for a mouth-watering return of around 510%. However, as it breaks higher from consolidation around 45 cents, there could be more room to run. The stock appears to also rebounding nicely from oversold MACD, RSI, and Williams’ %R levels.

Additionally, its short-, medium-, and long-term indicators are all positive, including its 20-day MA, 20-50 day MACD oscillator, 20-100 day MACD oscillator, 20-200 day MACD oscillator, 50-day MA, 50-100 day MACD oscillator, 50-150 day MACD oscillator, 50-200 day MACD oscillator, 100-day MA, 150-day MA, 200-day MA, and its 100-200 day MACD oscillator.

Strong Leadership, Strong Results

Successful companies tend to possess common traits, and one of those traits is a strong management team. Skylight Health Group certainly has that ground covered.

Prad Sekar
Chief Executive Officer, Secretary and Director

Mr. Sekar has spent over 15 years in clinical practice management owning, operating and consulting with outpatient multi-disciplinary healthcare practices in Canada and the US. Mr. Sekar holds a BSc Hon from the University of the Ottawa and a MBA from Hult International Business School. Following a career in establishing and operating successful medical practices, Mr. Sekar began consulting with Canadian medical regulatory bodies and agencies to support their network of practitioners in the establishment and operation of medical clinics. Mr. Sekar is also a recognized professor with a registered program for Medical Office Assistants under the Ontario Ministry of Education.

Kash Qureshi
President, Chief Technology Officer and Director

As co-founder of Skylight Health, Mr. Qureshi brings more than 20 years of extensive operational and entrepreneurial experience in the sales, commercial financing, technology, and the last 10 years directly involved in healthcare, wellness and health technology. An ardent cost-efficiency executive, Mr. Qureshi has focused on technology infrastructure, operational proficiencies, overall profitability, as well as acquisitions in a series of organizations throughout the healthcare sector.

Dan Thompson
Chief Corporate Officer

Dan brings over 15 years of marketing experience with high-growth public and private technology companies. Dan built and led the marketing divisions for early-stage companies in retail, travel and payment technology. Dan graduated from Michigan State University with degrees in marketing and communications.

Kishan Mahabir
Chief Medical Officer

Dr. Mahabir is a nephrologist, internist and medical Can expert. Dr. Mahabir is currently the Site Lead of Internal Medicine with William Osler Health System at Etobicoke General Hospital. He studied medicine at McMaster University, where he also completed his residency and fellowship.

Carmelo Marrelli
Chief Financial Officer

Carmelo (Carm) is the principal of Marrelli Support Services Inc. In addition, Carm is affiliated with DSA Corporate Services Inc., a firm providing corporate secretarial and regulatory filing services to the junior capital market in Canada. He has a Bachelor of Commerce degree from the University of Toronto.

Norton Singhavon
Chairman of the Board

Norton is the Founder, Chairman & CEO of GTEC Holdings and has extensive experience in capital investments, acquisitions, consolidations, and start-ups in Canada’s private and public cannabis sector. He has deployed over $100 million into the North American Can industry and has been involved in numerous public M & A Can transactions and was an early stage advisor to major Licensed Producers, including Cronos Group.

Peter Cummins

Peter has spent over two decades with Johnson & Johnson, including executive leadership roles overseeing research and development, product development, external innovation, regulatory affairs and hospital pharmacy across Canada, US, Europe and other regions. He has also served in Regulatory and Scientific Affairs at Procter & Gamble and was the Director of Pharmacy at Cambridge Memorial Hospital.

Tom Brogan

Tom Brogan brings 40 years experience in aggregating anonymized healthcare data to create insights to support traditional pharmaceutical companies and for use in health economic studies. His innovations include a long list of applications that merge Real World Evidence with traditional healthcare protocols. Mr. Brogan is currently the CEO and Chairman at Vestrum Health, an electronic healthcare record data company which delivers information systems to pharmaceutical manufacturers, physician practices and other healthcare stakeholders. Prior to Vestrum Health, he was the founder of Brogan Consulting, which was acquired by IMS in 2010, now IQVIA, one of the world’s largest Contract Research Organizations (CROs), following which Mr. Brogan continued on with the company as Vice President of Global Oncology at IMS Health.

Marc Adelson

Marc is the deputy chief legal officer at Teladoc Inc., a New York-based telemedicine company. He has spent nearly a decade with the healthcare technology firm, both in his current role and as Chief Privacy Officer. Teladoc is a telemedicine company that connects over 3,100 licensed healthcare professionals with millions of patients through comprehensive, virtual care.

Kash Qureshi

As co-founder of Skylight Health, Mr. Qureshi brings more than 20 years of extensive operational and entrepreneurial experience in the sales, commercial financing, technology, and the last 10 years directly involved in healthcare, wellness and health technology. An ardent cost-efficiency executive, Mr. Qureshi has focused on technology infrastructure, operational proficiencies, overall profitability, as well as acquisitions in a series of organizations throughout the healthcare sector.

The Top Reasons to Consider Skylight Health Group (TSX:SHG)(OTC:SHGFF)

  • With a broken healthcare system, the U.S. is seeing unprecedented demand for integrative medicine(1)
  • Skylight Health Group is one of the largest, yet most undervalued multi-disciplinary healthcare systems
  • Skylight’s 3 Pronged Growth Strategy can mean exponential growth to hundreds of millions of Americans in the multi-trillion dollar healthcare industry
  • Mackie Research analyst Yue Ma believes Skylight is more undervalued than its peers, and initiated coverage with a “speculative buy” rating with an approximate $1.10 price target.(3)