Online Medical consultation and treatment

On track to meet 100% growth target

Doctor Care Anywhere Group 29 July 2021 Update
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Doctor Care Anywhere Group

On track to meet 100% growth target

Q221 trading update

Healthcare equipment & services

29 July 2021

Price

A$0.82

Market cap

A$260m

A$1.84/£

Net cash (£m) at end Q221

31.5

Shares in issue

318.7m

Free float

55.5%

Code

DOC

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.6)

(22.7)

N/A

Rel (local)

(4.6)

(26.0)

N/A

52-week high/low

A$1.48

A$0.77

Business description

Doctor Care Anywhere is a fast-growing telehealth company focused on delivering high-quality care to its patients, while reducing the cost of providing healthcare for health insurers and healthcare providers.

Next events

H121 results

31 August 2021

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Max Hayes

+44 (0)20 3077 5700

Jonas Peciulis

+44 (0)20 3077 5728

Dr Sean Conroy

+44 (0)20 3077 5700

Doctor Care Anywhere Group is a research client of Edison Investment Research Limited

Doctor Care Anywhere Group's (DOC) Q221 update highlights that underlying revenue has continued to increase, driven by its expanding internet hospital and subsequent growth in diagnostic referrals. Management remains confident that FY21 revenue will be at least 100% above FY20 levels, implying a total revenue of at least £23.2m. Its balance sheet remains strong with net cash of £31.5m. The expected Q421 launch of its digitally integrated virtual and in-person primary care service with Nuffield Health will be a UK first.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

EV/Sales
(x)

P/E
(x)

12/19

5.7

(4.4)

(3.7)

0.0

18.1

N/A

12/20

11.6

(13.5)

(7.8)

0.0

8.9

N/A

12/21e

23.4

(16.3)

(5.1)

0.0

4.5

N/A

12/22e

37.4

(9.0)

(2.8)

0.0

2.8

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Strong demand evident in Q2

Underlying revenue increased to £4.8m in Q221, up 78% y-o-y and 8% q-o-q. Diagnostic referrals (+34.4% q-o-q) drove this increase, as consultations remained substantially flat q-o-q at 89.4k. Eligible lives also remained broadly flat q-o-q at 2.36m, but this is in line with our end-FY21 forecast of 2.39m. Activated lives were 558.7k, up 13% q-o-q and 90% y-o-y, signalling increased demand within its existing customer base. The group’s balance sheet at the end of the period was strong, with net cash of £31.5m (Q121: £35.1m).

Outlook maintained for FY21

Management has maintained guidance for FY21 and is expecting revenue of at least £23.2m (up at least 100% y-o-y). Constraints in GP availability, mainly due to roll-out of the UK’s vaccination programme, resulted in consultations remaining flat q-o-q during Q221. However, consultations should rise in H221 given the increase in activated lives during the quarter and pent-up demand from Q2. 71 new GPs were onboarded in Q221 and 100 more are in the pipeline for Q321, which should support this expected rise in demand. On 25 May, DOC announced a strengthened partnership with Nuffield Health to develop the UK’s first digitally integrated virtual and in-person primary care service. We understand that referrals to in-person primary care could be another potential revenue source, while the partnership could generate more subscription licences and activated lives after it launches in Q421. Our forecasts for FY21 and FY22 remain unchanged.

Valuation: Remaining at a discount to peer group

DOC trades on forecast EV/Sales multiples of 4.5x and 2.8x for FY21e and FY22e respectively, a significant discount to the 9.0x and 6.8x average respectively for our peer group of global telehealth companies. We maintain the view that this discount should reduce as DOC continues to build up a track record and execute on its growth strategy.

Review of Q221 trading update

DOC’s Q221 activity report showed that revenue is continuing to rise in 2021, in line with both Edison’s and management’s expectations. The rise in activated lives indicates a level of pent-up demand which, when met with a growth in supply of GPs on DOC’s platform, should result in further growth in revenue in H221.

Financial performance

Group underlying revenue increased by 78% y-o-y and 8% q-o-q to £4.8m in Q221, driven by growth in diagnostic referrals rather than in consultations, which remained flat q-o-q. Growth in diagnostic referrals shows that DOC is successfully expanding its internet hospital offering, which offers both primary and secondary care services. In line with our last update note, we expect growth in secondary care services to accelerate following the end of most of the COVID-19-related restrictions in the UK. Total revenue fell by 25.6% q-o-q due to £2m incentive payments and payments for technology development received in Q1.

Underlying gross profit for Q221 was £1.9m, down by 1.6% q-o-q but up 47.5% y-o-y. Underlying gross profit margin was 39.3%, down 3.9pp from the previous quarter. Both reductions are attributable to the additional financial incentives paid to doctors, as a result of both higher than expected demand and constraints on GP supply due to their reallocation of time to the UK’s vaccination roll-out. We expect this to normalise in H221 as the UK reaches the latter stages of its vaccination roll-out.

DOC’s balance sheet remains robust, ending Q221 with net cash of £31.5m versus £35.1m at the end of Q121. Net cash burn of £3.6m resulted from net operating cash outflows of £2.8m, net investing cash outflows of £0.6m and net financing cash outflows of £0.2m. Its net cash position by the half year was higher than our forecasts and we therefore anticipate that the group will finish 2021 comfortably within our estimate of £20.9m net cash.

Exhibit 1: DOC Q2 results summary

£m

Q221

Q121

q-o-q change

Q220

y-o-y change

Revenue

4.8

6.4

(25.6%)

2.7

78.1%

Gross profit

1.9

3.9

(52.0%)

1.3

47.5%

Gross margin

39.4%

61.0%

(21.6ppt)

47.5%

(8.2ppt)

Contribution

0.5

2.9

(81.3%)

0.4

34.3%

Contribution margin

11.3%

45.0%

(33.7ppt)

15.0%

(3.7ppt)

Underlying basis*

Revenue

4.8

4.4

8.1%

2.7

78.1%

Gross profit

1.9

1.9

(1.6%)

1.3

47.5%

Gross margin

39 3%

43.2%

(3.9ppt)

47.5%

(8.2ppt)

Contribution

0.5

0.9

(39.0%)

0.4

34.1%

Contribution margin

11.3%

20.0%

(8.7ppt)

15.0%

(3.7ppt)

Source: Company data. Note: *Excludes one-off revenue such as underwritten volume top-up payments, tech platform licensing fees and digital design service fees.

Operational performance

Eligible Lives (2.36m at end Q221; +0% q-o-q and +10% y-o-y)

Eligible Lives refers to the number of people that can use DOC’s platform across all its channel partners at the end of a given period. This figure remained broadly flat q-o-q at 2.36m, given that no new partnerships were formed. However, this is in line with our forecasts for 2.39m by the end of FY21.

Activated Lives (558.7k at end Q221; +13% q-o-q and +90% y-o-y)

Activated Lives refers to the number of eligible lives that are signed up to DOC’s platform in a given period. During Q221, activated lives grew by 90% y-o-y and by 13% q-o-q to 558.7k (Q121: 495.9k), highlighting that demand has continued to build during the period. The group remains comfortably on track to meet our end-FY21 forecast of 596k.

Exhibit 2: Activated lives (000’s) at period end

Exhibit 3: Consultations (000’s) at period end

Source: Company data

Source: Company data

Exhibit 2: Activated lives (000’s) at period end

Source: Company data

Exhibit 3: Consultations (000’s) at period end

Source: Company data

Consultations (89.4k at end Q221; (1%) q-o-q and +69% y-o-y)

Consultations are the number of Virtual GP (VGP) appointments that are delivered over DOC’s platform during the period. Utilisation revenue, DOCS’s primary revenue source, is based on the number of consultations performed and so is a key performance indicator for the group. In Q221, DOC undertook 89.4k consultations, a 1% fall q-o-q or 69% increase y-o-y. Supply constraints were the primary reason for the slight decline, mainly due to GPs being recalled to conduct the roll-out of the UK’s vaccination programme. However, demand remains strong as illustrated by the growth in activated lives, which should drive consultation growth in H221. Confirmation of this growing demand was evidenced by DOC achieving a record 2,146 consultations conducted in a single day, up 33% on the previous highest number in a day. Record consultation volumes were also seen across all days of the week at quarter end.

Additional capacity will be key to supporting the expected growth in consultations, and so management has onboarded 71 GPs during Q221, bringing its panel total to 315; an additional 100 GPs are in the pipeline for H221. Management believes this recruitment drive will allow for 45,000 appointments per month by the end of Q3, significantly higher than what it currently achieves (although the exact number is not disclosed). Subsequently, we believe that growth will be H2 weighted and that the company is on track to meet our forecast of 432k consultations in 2021.

New contracts

DOC’s expanded partnership with Nuffield Health will create the UK’s first digitally integrated virtual and in-person primary care service, allowing for increased coverage of care. Its previous arrangement, which started in October 2016, provided access to DOC’s virtual GP service but did not include this extension of Nuffield Health’s nationwide network of face-to-face GPs via one digital platform. The ability to offer more services such as women’s health, travel and immunisation clinics and chronic disease management programmes diversifies potential streams and additional revenue will be achieved primarily through referrals to in-person care from DOC’s platform. Pre-marketing to Nuffield Health’s network of 1,600 corporate clients has already begun and the agreement should lead to an increase in activated lives and subscription licences.

In addition, DOC announced a partnership with Partners&, a business insurance broker, during the period and will provide its clients with both mental and physical healthcare services. This is DOC’s first partnership to include mental health, showing both the expanding scope of its platform and management’s execution of stated IPO commitments. In the same style as its VGP consultations, Partners&’s clients will be able to access 20- to 40-minute appointments all year round, while also having access to the mental wellbeing tools developed by DOC’s partners, Koa Foundations and Kooth.

Unchanged outlook and forecasts

After another robust quarter, management has reaffirmed guidance that revenue growth in 2021 will be at least 100% above 2020 levels (£11.6m), implying total revenue of at least £23.2m. For H221, performance will be driven by an anticipated increase in consultations, underpinned by the level of pent-up demand indicated by a sustained increase in activated lives in H121. Consultation supply constraints should also be eased by the increase in supply of GPs onboarded onto DOC’s platform. Additionally, its JV internet hospital offering with AXA Health should benefit following the end of most COVID-19-related restrictions, where growth in secondary care services is expected to accelerate, after being curtailed by lockdowns. To reach management’s guided figure of £23.2m for 2021, the group will need to achieve H221 revenues of £12.1m, 34% higher than the combined Q1 and Q2 underlying revenue of £9.2m but in line with our forecasts.

We have left our forecasts for FY21 and FY22 unchanged from our recent upgrades following DOC’s Q121 results, which accounted for the £2m one-off revenue earned in Q121.

Exhibit 4: Financial summary

£m

2018

2019

2020

2021e

2022e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Total Revenue

2.0

5.7

11.6

23.4

37.4

Underlying Revenue

2.0

5.7

11.6

21.5

37.4

Cost of Sales

(0.8)

(1.4)

(5.9)

(12.2)

(21.9)

Gross Profit

1.2

4.4

5.7

11.2

15.6

Normalised EBITDA

(4.2)

(3.7)

(11.6)

(15.5)

(11.4)

Normalised operating profit

(5.1)

(4.4)

(12.6)

(16.6)

(12.6)

Amortisation of acquired intangibles

-

-

-

-

-

Exceptionals

-

-

6.0

-

-

Share-based payments

-

(0.1)

(2.2)

-

-

Reported EBITDA

(4.1)

(3.8)

(7.8)

(15.5)

(11.4)

Reported operating profit

(5.1)

(4.5)

(8.7)

(16.6)

(12.6)

Net Interest

(0.0)

(0.0)

(0.1)

-

-

Joint ventures & associates (post tax)

-

-

(0.8)

0.3

3.7

Exceptionals

-

(1.3)

(21.7)

-

-

Profit Before Tax (norm)

(5.2)

(4.4)

(13.5)

(16.3)

(9.0)

Profit Before Tax (reported)

(5.1)

(5.8)

(31.4)

(16.3)

(9.0)

Reported tax

0.1

0.1

0.1

-

-

Profit After Tax (norm)

(5.0)

(4.4)

(13.4)

(16.2)

(8.9)

Profit After Tax (reported)

(5.0)

(5.7)

(31.3)

(16.2)

(8.9)

116.4

117.4

171.9

318.7

318.7

Basic average number of shares outstanding (m)

116.4

117.4

171.9

318.7

318.7

EPS - basic normalised (p)

(4.31)

(3.71)

(7.81)

(5.09)

(2.80)

EPS - diluted normalised (p)

(4.31)

(3.71)

(7.81)

(5.09)

(2.80)

EPS - basic reported (p)

(4.28)

(4.83)

(18.20)

(5.09)

(2.80)

Revenue growth (%)

N/A

184.2

102.1

102.2

59.9

Gross Margin (%)

58.0

76.1

49.2

47.7

41.6

EBITDA Margin (%)

(204.7)

(66.0)

(67.3)

(66.3)

(30.4)

Normalised Operating Margin

(255.3)

(76.9)

(108.5)

(70.8)

(33.7)

BALANCE SHEET

Fixed Assets

3.0

3.8

7.5

8.8

13.3

Intangible Assets

2.8

3.6

3.6

4.5

5.3

Tangible Assets

0.1

0.3

1.7

1.8

1.8

Investments & other

0.0

0.0

2.2

2.5

6.2

Current Assets

2.3

1.2

42.0

27.7

19.7

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

0.6

0.6

3.6

6.7

11.7

Cash & cash equivalents

1.7

0.6

38.4

20.9

7.9

Other

0.0

0.0

0.0

0.0

0.0

Current Liabilities

(2.0)

(2.1)

(3.8)

(7.0)

(12.4)

Creditors

(2.0)

(2.1)

(3.8)

(7.0)

(12.4)

Tax and social security

0.0

0.0

0.0

0.0

0.0

Short term borrowings

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

(2.9)

(8.2)

(1.2)

(1.2)

(1.2)

Long term borrowings

0.0

0.0

0.0

0.0

0.0

Other long-term liabilities

(2.9)

(8.2)

(1.2)

(1.2)

(1.2)

Net Assets

0.4

(5.4)

44.5

28.3

19.4

Minority interests

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

0.4

(5.4)

44.5

28.3

19.4

CASH FLOW

Op Cash Flow before WC and tax

(5.1)

(4.4)

(12.5)

(16.6)

(12.6)

Working capital

1.0

0.3

(1.2)

0.1

0.4

Exceptional & other

1.1

0.9

3.2

1.1

1.2

Tax

0.1

(0.1)

(0.0)

0.0

0.0

Net operating cash flow

(2.8)

(3.3)

(10.7)

(15.4)

(11.0)

Capex

(0.0)

(0.1)

(0.4)

(0.5)

(0.5)

Acquisitions/disposals

0.0

0.0

3.0

0.0

0.0

Net interest

0.0

(0.3)

(0.3)

0.0

0.0

Equity financing

0.0

0.2

31.2

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

1.8

2.3

14.9

(1.6)

(1.6)

Net Cash Flow

(1.1)

(1.1)

37.8

(17.5)

(13.1)

Opening net debt/(cash)

(2.8)

(1.7)

(0.6)

(38.4)

(21.0)

FX

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

(1.7)

(0.6)

(38.4)

(21.0)

(7.9)

Source: Company data, Edison Investment Research

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This report has been commissioned by Doctor Care Anywhere Group and prepared and issued by Edison, in consideration of a fee payable by Doctor Care Anywhere Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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General disclaimer and copyright

This report has been commissioned by Doctor Care Anywhere Group and prepared and issued by Edison, in consideration of a fee payable by Doctor Care Anywhere Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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