Online Medical consultation and treatment

Seizing the market opportunity

Doctor Care Anywhere Group 3 November 2021 Update
Download PDF

Doctor Care Anywhere Group

Seizing the market opportunity

Q321 results

Software & comp services

3 November 2021

Price

A$0.63

Market cap

A$208m

A$1.84/£

Net cash (£m) at 30 September 2021

23.5

Shares in issue

329.6m

Free float

53.3%

Code

DOC

Primary exchange

ASX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(8.2)

(16.3)

N/A

Rel (local)

(10.1)

(15.0)

N/A

52-week high/low

A$1.48

A$0.66

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

FY21 update

January 2021

Analysts

Max Hayes

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5730

Dr 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) Q321 results highlight that revenue has continued to grow throughout the year, with performance in Q3 driven by a return to q-o-q growth in consultations. Following positive momentum, management has reiterated guidance for FY21 of at least 100% y-o-y organic revenue growth. Through its continuing GP recruitment drive over the period, management has positioned itself for scalable growth, which should allow it to capture the time-limited opportunity from growing demand. Additionally, through its acquisition of GP2U Telehealth and by extending its offering in Ireland, DOC has increased in addressable market.

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

15.7

N/A

12/20

11.6

(13.5)

(7.8)

0.0

7.8

N/A

12/21e

23.6

(18.5)

(5.7)

0.0

3.8

N/A

12/22e

38.4

(9.1)

(2.8)

0.0

2.3

N/A

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

Growth re-accelerating

Revenues were up 22% q-o-q and 83% y-o-y to £5.8m in Q321, driven primarily by a return to growth in consultations following a flat Q221. Consultations increased to 117k (+31% q-o-q and +87% y-o-y), with over 65% from returning patients and the remaining 35% from a record number of first-time appointments (41k). The increase in demand highlights the popularity of telehealth as an alternative to in-person GP appointments, supported by record-high NHS waiting lists, which are only expected to worsen. DOC’s high repeat user base of 65% illustrates the attractiveness of its platform. As anticipated in our Q221 update, secondary care diagnostic pathways continue to grow as COVID-19 restrictions ease, indicated by a 55% q-o-q increase in referrals to 5.1k patients. Our revenue forecasts remain unchanged.

Investing in the opportunity

DOC’s Q3 results show continuing operating margin pressure due to investment in its portfolio of GPs, with underlying gross profit down 6.4% q-o-q to £1.8m. Management continued its GP recruitment drive in the quarter, resulting in a temporary rise in costs, but ensuring that DOC has the capacity to capture rapidly increasing demand for telehealth services. Each month in Q3, record numbers of consultations were delivered and, notably, during September 45.8k consultations were delivered, exceeding its Q221 goal of being able to deliver 45k consultations by the end of Q321. Management remains confident that margin pressures will ease as the demand for the UK’s clinical workforce eases. Subsequently, we have lowered our FY21 profit forecasts but maintain our FY22 forecasts.

Valuation: Discount slowly closing

DOC currently trades on 3.8x and 2.3x EV/Sales in FY21e and FY22e, respectively, at an average discount of 60% across FY21–22e relative to peers. The discount has remained at this level throughout the year.

Review of Q321 trading update

Financial performance

Group revenue increased by 22% q-o-q and 83% y-o-y to £5.8m in Q321, driven primarily by a return to growth in consultations following a flat Q221. Revenue also benefited from a 54.5% increase in diagnostic referrals to 5,100, indicating that DOC’s Internet Hospital has seen continued growth throughout the year and this is in line with our Q221 update. On an underlying basis, y-o-y revenue growth ytd was slightly lower than the reported figure due to £2m in incentive payments and payments for technology development received in Q1. That said, on both a reported and underlying basis, ytd growth was significantly above 100%, providing a strong indication that management is on track to achieve its FY21 revenue growth target of at least 100%, excluding any contribution attributable to the acquisition of GP2U. That said, the impact of the acquisition, as well as the extension of its services to self-paying clients, should be minimal due to the late timing in Q3.

Gross profit for the period was £1.8m, a fall of 6.4% q-o-q but an increase of 27.5% y-o-y, which resulted in a gross margin reduction of 9.1pp q-o-q and of 13.1 pp y-o-y. Margin pressure was a result of management’s continued GP drive during Q321, in which DOC onboarded 120 GPs to reach a total exceeding 400 on its platform. Due to the demand on the UK’s clinical workforce and competition from other, mainly private telehealth companies, many of these GPs were onboarded at higher-than-normal rates and with additional incentives. However, management’s strategy of broadening capacity has been critical in meeting month-on-month (m-o-m) increases in consultations in Q321. The elevated costs of onboarding new GPs due to higher fees and incentives could be temporary if demand for the UK’s clinical workforce eases in FY22, as expected by management.

DOC’s balance sheet remains robust, ending the period with net cash of £23.5m. That said, its net cash position was £8m lower than at the half year due to net operating cash outflows of £5.5m, net investing cash outflows of £2.3m (mainly comprising the GP2U acquisition) and net financing cash outflows of £0.1m. We have revised our forecasts to reflect Q3 performance and reduced our end-FY21 estimate to £18.4m. Our forecasts still show net cash of £2.6m by the end of FY22.

Exhibit 1: DOC Q3 results summary

£m

Q321

Q221

q-o-q change

Q320

y-o-y change

ytd 2021

ytd 2020

y-o-y change

Revenue

5.8

4.8

21.6%

3.2

82.6%

17.1

7.8

119.8%

Gross profit

1.8

1.9

(6.4%)

1.4

27.5%

7.6

3.9

93.9%

Gross margin

30.3%

39.4%

(9.1 pp)

44.1%

(13.1 pp)

44.4%

38.5%

5.9 pp

Contribution

0.2

0.5

(67.1%)

0.5

(60.4%)

3.6

1.7

106.8%

Contribution margin

3.1%

11.3%

(8.3 pp)

14.4%

(11.0 pp)

21.1%

19.8%

1.3 pp

Underlying basis*

Revenue

5.8

4.8

21.7%

3.0

91.6%

15.1

7.0

116.2%

Gross profit

1.8

1.9

(6.4%)

1.3

42.9%

5.6

3.1

79.1%

Gross margin

30.3%

39.4%

(9.1 pp)

41.3%

(10.3 pp)

37.0%

29.4%

7.7 pp

Contribution

0.2

0.5

(67.3%)

0.3

(40.9%)

1.6

0.9

69.2%

Contribution margin

3.0%

11.3%

(8.3 pp)

10.2%

(6.8 pp)

10.6%

7.6%

3.0 pp

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

Operating performance

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 and this figure remained flat q-o-q at 2.4 million. Activated lives refers to the number of eligible lives that are signed up to DOC’s platform in a given period. During Q321, activated lives were up 8% to 603k, showing that management is successfully activating a greater share of eligible lives.

Consultations refers to the number of virtual GP (VGP) appointments that are delivered over DOC’s platform during the period. Consultations increased to 117k, up 31% q-o-q and 87% y-o-y, with more than 65% from returning patients and the remaining 35% from a record number of first-time appointments (41k). Notably, DOC reached record numbers of monthly consultations in Q321, reaching 45.8k in September, which was ahead of management’s Q221 goal of being able to deliver 45k monthly consultations by the end of Q321.

Over the year, management has focused on onboarding GPs on fixed-hour contracts, which has been key to DOC’s ability to handle the growing number of consultations it delivers reliably. Previously, DOC used flexible-hour contracts when there was greater uncertainty around demand.

Exhibit 2: Consultation q-o-q growth, split between repeat and new customers

Source: Doctor Care Anywhere Group

Internet Hospital is a differentiator

DOC’s Internet Hospital, which connects secondary care diagnostic pathways to initial GP consultations, is unique and provides the company with first-mover advantage. Financially, DOC benefits from an extended patient journey, where an initial consultation of £45 could grow into a total revenue per patient journey of £200 through additional diagnostic tests, specialist reviews and GP follow-ups. DOC collects a 100% gross margin on those steps of the patient journey that do not include a GP consultation, as none of the secondary care is provided on its platform and so it only collects a rebate for referrals for the amounts shown in Exhibit 3. For the patient, the Internet Hospital offers myriad benefits compared to traditional UK patient journeys, including shorter wait times and lower total costs. It is also attractive for channel partners, reflected in estimated claims savings of 25%, a net promoter score of over 80 (a type of customer satisfaction score, considered leading class) and retention rates of more than 95%.

Exhibit 3: Internet Hospital revenue drivers

Source: Doctor Care Anywhere Group

Over the period, diagnostic journeys grew by 54.5% q-o-q to 5,100. Growth throughout the year benefited from the relaxation of COVID-19-related restrictions, as lockdowns had curtailed growth. Additionally, management added new diagnostic specialities and pathways over the period, including neurology, urology and gynaecology, which diversifies and adds to potential revenue streams.

Significant market opportunity

Management estimates that there are 10 million potential patients in its current UK addressable market, encompassing the private health sector alone. DOC has access to four million of these patients through its existing large channel partners, such as AXA Health, Allianz and Nuffield Health, which equates to eight million potential GP consultations a year based on an average of two patient visits per year. At an initial consultation fee of £45, this could generate potential annual revenue of £360m.

The opportunity could increase by another £88m to £448m when considering DOC’s Internet Hospital. This is based on management’s estimate that 20% of the four million potential patients (0.8 million) will be referred to diagnostic referrals and specialist reviews, which could generate referral fees of £110 per patient. Based on our FY21 revenue forecast of £23.6m and the estimated market opportunity of £448m, this implies that DOC will only have penetrated 5% of the UK market this year.

DOC’s entry into Australia, where there is significant latent demand for telehealth, and its extended offering to self-pay customers in Ireland, should further increase market potential (more detail can be found in our GP2U acquisition note).

Changes to estimates

We have left our revenue estimates for FY21 and FY22 unchanged. Our FY21 forecast of £23.6m is in line with management’s 100% growth expectation for the year, which excludes any contribution from GP2U. We believe DOC would only need to deliver a small q-o-q increase in Q421 consultations to achieve this, far below the 31% growth in Q321. In FY22, DOC should see a greater contribution from its acquisition of GP2U, as well as from its agreement with Nuffield Health, which is expected to launch in Q421.

We have slightly decreased our gross profit forecast for the year, following a decrease in our H221 gross margin forecast from 31.5% to 28.2%, to reflect expected margin pressures for the rest of 2021. Subsequently, our EBITDA loss forecast has increased from £17.5m to £18.0m and our operating loss has risen from £18.6m to £19.1m. We have left our P&L forecasts for FY22 unchanged, in line with management’s belief that margins could improve as the impact of COVID-19 on increasing demand for the UK’s clinical workforce eases. That said, there is still uncertainty around how long and to what extent competition for GPs will remain high, resulting in continued incentives and high GP fees. We have reduced our estimated net cash position at end FY21 and end FY22 by 3% and 32% respectively, reflecting the reduced profitability in FY21. This highlights that if gross margins do not improve in FY22 as management expects, there may be a need for additional fund-raising; our current net cash forecast of £2.6m at end FY22 is significantly below our estimate for end FY21 (£18.4m).

Exhibit 4: Summary of forecast changes

£'000s

Current estimates

Prior estimates

Change

2021e

2022e

2021e

2022e

2021 chg.

2022 chg.

Revenues

23,609

38,407

23,643

38,384

0%

0%

Gross profit

9,279

16,321

9,722

16,298

-5%

0%

Gross margin

39.3%

42.5%

41.1%

42.5%

(182bp)

3bp

Normalised EBITDA loss

(17,967)

(11,521)

(17,518)

(11,519)

3%

0%

Normalised Operating loss (EBIT)

(19,071)

(12,718)

(18,623)

(12,715)

2%

0%

Share of JV gain/(loss)

221

3,573

221

3,573

0%

0%

Normalised net profit

(18,382)

(9,127)

(17,934)

(9,125)

2%

0%

Basic EPS (p)

(5.72)

(2.77)

(5.58)

(2.77)

2%

0%

Diluted shares outstanding (000s)

321,451

329,645

321,451

329,645

0%

0%

Diluted EPS (p)

(5.72)

(2.77)

(5.58)

(2.77)

2%

0%

Net cash

18,430

2,630

19,062

3,850

(3%)

(32%)

Source: Edison Investment Research

Exhibit 5: 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

23.6

38.4

Underlying Revenue

2.0

5.7

11.6

21.6

38.4

Cost of Sales

(0.8)

(1.4)

(5.9)

(14.3)

(22.1)

Gross Profit

1.2

4.4

5.7

9.3

16.3

Normalised EBITDA

(4.2)

(3.7)

(11.6)

(17.6)

(11.5)

Normalised operating profit

(5.1)

(4.4)

(12.6)

(18.7)

(12.7)

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

6.0

0.3

0.0

Share-based payments

0.0

(0.1)

(2.2)

(0.6)

0.0

Reported EBITDA

(4.1)

(3.8)

(7.8)

(18.0)

(11.5)

Reported operating profit

(5.1)

(4.5)

(8.7)

(19.1)

(12.7)

Net Interest

(0.0)

(0.0)

(0.1)

0.0

0.0

Joint ventures & associates (post tax)

0.0

0.0

(0.8)

0.2

3.6

Exceptionals

0.0

(1.3)

(21.7)

0.0

0.0

Profit Before Tax (norm)

(5.2)

(4.4)

(13.5)

(18.5)

(9.1)

Profit Before Tax (reported)

(5.1)

(5.8)

(31.4)

(18.8)

(9.1)

Reported tax

0.1

0.1

0.0

0.1

0.0

Profit After Tax (norm)

(5.0)

(4.3)

(13.3)

(18.4)

(9.1)

Profit After Tax (reported)

(5.0)

(5.7)

(31.3)

(18.7)

(9.1)

Basic average number of shares outstanding (m)

116.0

117.0

171.9

321.5

329.6

EPS - basic normalised (p)

(4.31)

(3.69)

(7.76)

(5.72)

(2.77)

EPS - diluted normalised (p)

(4.31)

(3.69)

(7.76)

(5.72)

(2.77)

EPS - basic reported (p)

(4.30)

(4.85)

(18.23)

(5.83)

(2.77)

Revenue growth (%)

0.0

184.2

102.1

104.0

62.7

Gross Margin (%)

58.0

76.1

49.2

39.3

42.5

EBITDA Margin (%)

(204.7)

(66.0)

(67.3)

(76.1)

(30.0)

Normalised Operating Margin

(255.3)

(76.9)

(108.5)

(79.3)

(33.1)

BALANCE SHEET

Fixed Assets

3.0

3.8

7.5

14.8

19.3

Intangible Assets

2.8

3.6

3.6

4.6

5.5

Tangible Assets

0.1

0.3

1.7

1.8

1.8

Investments & other

0.0

0.0

2.2

8.4

12.0

Current Assets

2.3

1.2

42.0

25.4

14.9

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

0.6

0.6

3.6

6.8

12.1

Cash & cash equivalents

1.7

0.6

38.4

18.4

2.6

Other

0.0

0.0

0.0

0.2

0.2

Current Liabilities

(2.0)

(2.1)

(3.8)

(8.8)

(12.1)

Creditors

(2.0)

(2.1)

(3.8)

(8.8)

(12.1)

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)

(1.0)

(1.0)

Long term borrowings

0.0

0.0

0.0

0.0

0.0

Other long-term liabilities

(2.9)

(8.2)

(1.2)

(1.0)

(1.0)

Net Assets

0.4

(5.4)

44.5

30.5

21.2

Minority interests

14.6

14.7

45.9

50.1

50.1

Shareholders' equity

14.9

9.4

90.4

80.6

71.3

CASH FLOW

EBITDA

(4.1)

(3.8)

(7.8)

(18.0)

(11.5)

Working capital

1.0

0.3

(1.2)

1.8

(1.9)

Exceptional & other

0.1

0.3

(1.6)

0.5

0.0

Tax

0.1

(0.1)

(0.0)

0.1

0.0

Net operating cash flow

(2.8)

(3.3)

(10.7)

(15.5)

(13.4)

Capex

(0.0)

(0.1)

(0.4)

(0.6)

(0.6)

Acquisitions/disposals

0.0

0.0

3.0

(1.8)

0.0

Net interest

0.0

(0.3)

(0.3)

0.0

0.0

Equity financing

0.0

0.2

31.2

(0.1)

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

1.8

2.3

14.9

(2.0)

(1.7)

Net Cash Flow

(1.1)

(1.1)

37.8

(19.9)

(15.8)

Opening net debt/(cash)

0.0

(1.7)

(0.6)

(38.4)

(18.4)

FX

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

(1.7)

(0.6)

(38.4)

(18.4)

(2.6)

Source: Company data, Edison Investment Research

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 £60,000 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.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

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.

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

Share this with friends and colleagues

You may be interested in