Leede Jones Gable warmed to plans by CareRx Corporation (TSX:CRRX) to expand into Atlantic Canada estimating it could add up to C$2.4 million to annual revenues going forward.
The broker reiterated its buy rating and C$5.50 price target following the news that CareRx has signed a multi-year contract to provide pharmacy services to residents in multiple senior living facilities in the region.
Leede Jones Gable said the move represents a geographic expansion from its mostly Ontario, Alberta and British Columbia operations with clients already in place to add 600 new long-term care/assisted living beds under management.
READ: CareRx signs multi-year contract to provide pharmacy services to residents in seniors living facilities in Atlantic Canada
The broker said it believes that geographic expansion into Atlantic Canada could fuel more regional bed count growth than the multi-year contract just announced given the comparatively high population centers in Halifax-Dartmouth in Nova Scotia and in the Fredericton-St. John corridor in New Brunswick.
The deal provides the foundation for future regional growth, the broker pointed out, noting that in Nova Scotia alone there are 134 licensed long-term care facilities with a total bed capacity of about 8,000, so CareRx’s new multi-year contract if based there would serve about 7.5% of that region.
The broker accepted the news does not substantially “move the needle” on the group’s valuation with 600 extra beds under management being a small proportion of the group’s average of 96,476.
But it added the presence in a new geographic region offers good growth prospects, especially once a regional fulfillment infrastructure has been established.
Assuming each bed can add about $4,000 per bed annually, as CareRx’s current national operations do, the broker estimated the contract alone can add up to C$2.4 million to annual revenue going forward, with a modest contribution to EBITDA of C$0.2 million to C$0.22 million.
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