A mere three weeks ago I commented on the interesting business of Skylight Health Group.

Sunday Small Cap Comment – Skylight Health Group

It was trading at $1.50 at the time, and my comment was I’m gonna keep an eye on it and if the price continues to come down I’ll do a deeper dive into its merit. This is the kind of company that is going to get bigger – more revenue, more acquisitions.

Well, here we are at $1.20 this morning. Its been trading in the 1.13 – 1.15 range this week (thank you very much Mr. Market!) down from an all time high of $1.85 back on February 17.

The current price of $1.20 puts it at a market cap of 215 million, which is frankly expensive. BUT this is a company in which the path to increasing revenue through acquisition and some modest organic growth is clear. They’ve been stacking their board and senior management with ‘been there done that’ professionals. Having officially completed a couple acquisitions this year proves up further that their pipeline of acquisition targets is legitimate.

I’ve done some DTM digging over the past couple weeks and I’m comfortable that SHG passes my Merit Screens (Management, Balance sheet, Share Structure) and Leverage Model (upside potential based on business strategy or asset class thesis).

I’m not a big follower of analyst reports as I tend to like to do the research myself, and I think they often miss the forest in the trees. Small cap analysts are often naive, lack business experience and tend to believe everything management tells them. However, I do like to compare my notes vs. others and I’m satisfied that my thesis on this company has some verification in the coverage from Raymond James Canada.

Thier most recent report on SHG was informative – Some Highlights from RJ’s March 4th Update:

This morning, Skylight Health Group (SHG-TSXV, OP2) announced that it has executed LOIs Acquire 3 Primary Care Clinics: $10 mln Rev. for <1x EV/Rev | Accretive to 6-7x EV/Revenue……..While still in the LOI phase, these (potential) acquisitions illustrate SHG’s steep inorganic growth trajectory, prudently deploying capital in transactions bearing multiples of <1x EV/Rev. and 4-5x EBITDA. As SHG currently trades at 6-7x EV/Revenue (vs. peers average 7-8.5x), we see these transactions as immediately accretive………… SHG is in rapid clinic acquisition mode, and it is through acquisitions like these—alongside some potentially larger, transformative deals—that we expect the company to materially boost its top line during the next few quarters. Assuming all announced transactions close, SHG’s annualized revenue run rate sits at $56 mln.

Management Additions: Significant Experience; Prep for Nasdaq Listing SHG’s recent appointment of Jerry Oliphant as COO—30 years’ experience operating large healthcare systems such as Atrium Health (>900 care locations, 62k FTEs, US$9 bln revenue) and Cleveland Clinic Health System (11 hospitals, 25k FTEs, US$4 bln revenue)—and Dr. Georges Feghali as CMO—30 years of clinical experience and 17 years as CMO of TriHealth (5 hospitals, 12k FTEs with 560 multi-specialty physicians, US$1.7 bln revenue)—implies to us that SHG is tooling up for its evolution into an eminent, national-scale multi-disciplinary healthcare network. (DTM’s Empasis) The company’s recent application to list on the NASDAQ and its appointment of Andrew Elinesky as CFO—former SVP and CFO at McEwen Mining with rich experience in corporate finance and M&A—also gives us a sense of the significant scale SHG is shooting for.

So, I’ve opened a position with an average cost of $1.17. A small one, and it isn’t part of the DTM5 ‘Official 5’ yet. But SHG now on the team. If you are into basketball this is like a two way contract. I intend to average into the stock and if it continues to prove up I’ll bump out one of the incumbent 5 (which usually means lowering my position if not selling it outright) and commit to having SHG as a starter. But not yet.

More comments to come….including one on SHG’s kissing cousin Protech Home Medical Medical (TSXV – PTQ).

GLTA!