Many countries are undergoing health system reforms. The most effective is considered to be insurance medicine, which implies a certain decentralization in the structure of the provision of medical services. Family doctors come to the fore, who need to keep administrative records at the level of a small clinic. The data obtained is used to assess the quality of the services provided and to find the most problematic areas.
The IPO of the company will take place this Thursday Privia Health Group, Inc., which created an online platform for doctors. It helps them streamline their healthcare delivery process and improve the quality of patient care. Trading starts on the NASDAQ exchange this Friday under the ticker PRVA… Let us examine the secret of the company’s popularity among US doctors.
Privia Health Business
Privia Health was founded in 2007 and is headquartered in Virginia. To build an effective business model, any company must decide what problem for its target audience it wants to solve. Physicians in the United States often find it difficult to serve clients and get feedback on the quality of their services. Privia online platform allows you to solve three serious problems of doctors in the United States at once:
- Adaptation to the “VBC (value based care)” model of reimbursement of treatment costs.
- Administering medical practice as required by the US Department of Health.
- Involving patients in assessing the quality of medical services and rewarding doctors for high-quality medical services.
Above is the Privia platform model, which includes:
- Patient control unit by individual tax numbers, in accordance with the medical group;
- Medical services control unit.
- Control unit reporting to the local health administration.
The main advantage of Privia is that its technological solution significantly reduces the cost of obtaining insurance compensation. The platform provides for the presence of a personal account of a patient and a doctor, which made it possible to unite doctors in 48 specialties. There is an opportunity to receive remote consultations from attending physicians, which reduces the cost of these services.
The company operates in six states and the District of Columbia, covering the 20 largest regions according to the MPSA (Medical Specialty Classification System) classification. The platform has over 3 million registered patients, over 2,700 healthcare providers and over 650 medical centers. Taking into account the dynamics of the company’s development, one of the main tasks for its management is to enter the markets of other states.
Privia Health market and competitors
According to a study by Grand View Research, the healthcare management market in 2020 amounted to USD 13.9 billion, and by 2027 it will reach USD 62 billion. The average annual growth rate can reach 20.5%.
Probably, demand from doctors will only grow due to the need to reduce health care costs – in the United States, this is one of the most expensive industries. Digitalization covers more and more areas of our life, so the average annual growth rate of the market may turn out to be higher than predicted.
The main competitors of Privia Health are:
- Oak Street Health
- One Medical
- Agilon health
Financial performance of the company
Privia Health is going to IPO, unlike many technology companies, profitable. In our time, this is a great rarity. Therefore, we will conduct a comprehensive analysis of the company’s financial performance.
Net profit at the end of 2020 amounted to USD 30.9 million, a relative growth to 2019 – 388%. In 2018, the company recorded a loss. As you can see, business efficiency is growing, and the payback period of investments in Privia Health is shrinking.
The company’s operating profit is also growing: in 2020 this indicator amounted to USD 25.38 million, relative growth to 2019 – 58.03%. Revenue is not growing so actively so far. Sales for 2020 reached USD 817.08 million, a relative growth of 3.91% versus 2019. In 2019, revenue increased by 19.58% by 2018. In this case, the need to expand the company’s presence in other states is obvious, as sales growth rates are falling.
An important indicator for assessing the financial condition is EBITDA (operating profit + depreciation charges), which characterizes the efficiency of the company’s core business. EBITDA in 2020 amounted to USD 29.37 million, relative growth to 2019 – 62%.
The company has USD 84.63 million of cash on its balance sheet. The total liabilities of the company amount to USD 185.32 million. Free cash flow at the end of 2020 is USD 38.5 million. In general, the company has a solid financial position, the weak side is the drop in revenue growth rates.
Strengths and weaknesses of Privia Health
Let’s evaluate the weaknesses and strengths of the company, taking into account the information received above. The advantages of investing in Privia Health securities include:
- The company generates net income.
- The target market of the company by 2027 may reach 62 billion USD.
- The company has a high development potential within the United States and abroad.
- The company’s technological solution comprehensively meets the needs of its target audience.
- Strong management of the company.
Among the risks of investing in Privia Health, I single out:
- Revenue growth rates have been falling since 2019.
- The operating activities of the company are limited so far only to the United States.
- Net profit is not stable, the company does not plan to pay dividends.
IPO details and capitalization assessment of Privia Health
In preliminary rounds of financing, the company raised USD 165 million. The underwriters of the placement were R. Seelaus & Co., LLC, Truist Securities, Inc., Canaccord Genuity LLC, William Blair & Company, LLC, Siebert Williams Shank & Co., LLC, Goldman Sachs & Co. LLC, Credit Suisse Securities (USA) LLC and JP Morgan Securities LLC. During the IPO, Privia Health plans to raise USD 351 million by selling 19.5 million ordinary shares at a price ranging from USD 17 to USD 19 per share.
Upon placement, the company’s capitalization will amount to USD 2.19 billion. To assess Privia Health, we use the P / E (capitalization / net income) and P / S (capitalization / revenue) ratios (multipliers). P / E after the IPO will be 70.1. This means that the investment in the company will pay off at the current financial performance for more than 70 years. This is a valid metric for young tech companies. There is no upside for this multiplier.
P / S after the placement will be 2.68. The average value of this multiplier in the healthcare sector is 5. If the company’s revenues resume growth at the same rate, the upside for the company’s shares will be 86.56%.
I recommend the securities of this company as a high-risk investment with increased profit potential. It would be wise to make a “portioned” entry into this position.
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