Since I posted my last update on Carebook, I have been really digging in deep to try to get to the bottom of the story and I am amazed by what I have found.
NOT YOUR AVERAGE TELEHEALTH PLAY
To say that Carebook is strictly a "telehealth" play is a huge misconception and doesn’t do the company justice in terms of its true potential.
Initially, I thought the blue sky potential for CRBK was with their ‘MyVitals’ screening technology. After digging deeper, I learned that isn’t really the case. The blue sky potential is in the scalability of the ‘Carebook’ SaaS platform itself. While the software is currently only being used by Rexall in partnership for the ‘Be Well’ app, its applications in other industries and geographies are incredible.
Currently, the only company using the software is Rexall. That is a 5-year exclusive contract valued at $15M ($3M annual revenue). Rexall went as far as to ink an exclusivity agreement with Carebook in Canada, so they must really love the Carebook software. Fortunately, Carebook can leverage that successful partnership with Rexall with their SaaS ‘Carebook’ platform into other geographies and industries which is exactly what the company plans to do.
The 'Carebook' SaaS
The goal for the ‘Carebook’ software was to create better customer engagement tool for pharmaceutical companies. The company asked, “How can pharmacists connect better with their customers on a cost-effective, dynamic, consistent basis?”… the result was the ‘Carebook’ SaaS platform’ which is an all-in-one customer engagement tool for pharmaceutical companies to be more effective in patient monitoring, billing, inventory management, and much more. The ‘Carebook’ pharmacy vertical is not limited to their partnership with Rexall and the ‘Be Well’ app. The ‘Carebook’ software is ‘SaaS’, so it can be tweaked to fit the requires of any potential clients in other countries and industries. It is essentially the skeleton of an all-in-one customer engagement tool.
While other companies like Pharmasave, Walgreens, Shoppers Drug Mart use multiple different third-party rewards and loyalty programs to accomplish one end goal, they are not seamlessly integrated to the degree that the Carebook software is. The Carebook software platform was specifically built with international compliance and regulatory standards so as to not limit the potential for international expansion. Also, all functionality is scalable and applicable to other industries (insurance, employment, more). Think of this as a B2B SaaS company as opposed to a B2C telehealth play.
Carebook’s pharmacy vertical is directly associated with their Virtual Care vertical (MyVitals). The vitals screening technology has the potential to greatly enhance Carebook’s offering by allowing pharmacists to actively monitor and dynamically respond to a patients conditions in real time. Pharmacists can monitor vital signs and make recommendations to patients who require only a smartphone camera.
I touched on the ‘MyVitals’ technology itself in my last CRBK article. But I will add one more thing there. Carebook does have exclusivity rights to the SDK (software development kit) from Binah.Ai, in Canada only. So other companies around the world could technically tweak the SDK from Binah.ai to make their own version, but not in Canada. With that, I will also say this…. if you look at the summary metrics for private equity funding on binah.ai, you can see that ‘Esplanade Ventures’ is one of the largest investors in the company. Esplanade Ventures is owned by Sheldon Elman. Mr. Elman is also the largest shareholder in CRBK.
I think it will be a news-driven catalyst that sparks a reversal in the current downtrend. Carebook plans to generate revenue through three different sales verticals: pharmacy (Rexall partnership), virtual care, and insurance and if you look at the analyst revenue projection, he came up with the $12.5M 2021 estimate by factoring in the signing of 1-2 new clients per year for EACH vertical. Carebook has stated that they are currently in talks with some potential big-name brands for their pharmacy vertical so I would expect an announcement on that front in the near future.
There could also be something related to the insurance vertical as they had this to say in the listing statement: “Carebook is in advanced discussions and anticipates that an agreement will be entered into with a leading Canadian insurance provider. Similar to the pharmacy vertical, Carebook was selected by this insurance provider as its potential partner for a digital solution leveraging remote underwriting, long distance virtual care, and personalized health insurance offerings.”
Another factor to keep in mind here is that the actual free trading float is significantly less than what is showing. ~55% of the entire float is owned by Mr. Elman and his various PE firms whom are long term backers of the deal. A tightly held float will be advantageous here when the tides turn. Just imagine what has been happening for the last 2 weeks, but reverse the buying and selling pressure, and remove all the sellers. Also, insiders are blacked out until the next quarterly report and the company just hired Native Ads to do some marketing services so I would expect some big announcements to be made soon. This is a great story that people will buy into when they grasp the true potential of Carebook and what the company is trying to accomplish.
The relative value of CRBK is currently between $2.74-$3.70.
Take the $12.5 million revenue estimate for FY‘21 and multiply it by the peer group average EV/SALES21' multiple of 9.0x. You get an implied enterprise value of $112.5M. Divide that by fully diluted shares outstanding (44M) and you are left with $2.74 relative value per fully diluted share. So at these levels, Carebook is being heavily discounted.
As I mentioned in my last update on Carebook, the recent selling pressure has not come unexpectedly and the broad market sell-off has only added fuel to the fire. With that being said, it seems the selling has started to dry up and I sense a bottom forming.
The selling is likely from an institutional investor who participated in the $2.50 round and is exiting their initial position for liquidity/strategic purposes. Not because they are long or short; that’s not how these institutional guys operate. Given that there was a $3.125 warrant attached to the common share, investors in this round would actually have an average cost lower than $2.50. This is because the warrant technically has some ‘time-value’, despite CRBK trading below the warrant exercise price ($3.125). Retail investors won’t usually have this mindset with their positions; but larger funds will. It’s frustrating to watch as a shareholder, but I have learned from experience not to fight the tape or you will get your butt kicked.
The key takeaway from this is that the fundamentals are strong and the long term value is greater than what you will find in companies in the space so I would expect the share price will likely converge with its relative value of ~$2.74 and beyond. Trying to time the perfect price point for a reversal in the chart is pretty difficult, so my strategy is to accumulate (slowly) to avoid getting whipsawed on the way back up.
DISCLOSURE & DISCLAIMER
DISCLOSURE: Author owns shares of TSXV:CRBK and may choose to buy or sell at any time without notice. Author did not receive any compensation for publishing this article.
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