A recent addition to the DMXAM portfolios is Careteq (ASX:CTQ). Careteq is focused on delivering technology solutions and offerings in the aged care space. It listed on the ASX in 2022 owning two aged-care focussed businesses:
-Embedded Health Solutions (EHS) – Medication management services in aged care homes, including the evaluation and management of a patient’s medication regime. CTQ owns 55% of this profitable business.
-Sofihub – Sale of smart devices designed for monitoring the safety and movements of the elderly in both in-home and aged care settings. CTQ receives upfront device revenue and then ongoing recurring revenue, with a 98% retention rate. The business currently has strong tailwinds due to 3G being switched off and the need to replace those existing devices on 3G with more advanced devices such as Sofihub.
CTQ’s most recent acquisition, HMR Referrals (HMRR), announced in early December, adds another interesting offering to the CTQ portfolio. HMRR is a first-to-market marketplace that connects doctors to pharmacists who are accredited to undertake home medication reviews (HMR) for patients. Any patient of a doctor at risk of medication misadventure may be eligible for a free (to the patient) review of the medicines they are taking. Referrals are sent electronically directly from the doctor’s practice management system to ensure patient information is protected. The pharmacist will arrange a home visit with the patient to ensure that they are taking their medications correctly and that medications are not conflicting to avoid unnecessary hospitalisation. The pharmacist then sends the completed review back to the doctor, at which point the doctors can bill and claim their fee. HMRR suggests that most GP practices will have around 1000 patients who are eligible and could benefit from having an HMR, and it is an under-utilised component of community care. Given it is under-utilised, and fully government funded, HMRR is trying to promote the service to its GP and pharmacy base. The HMRR software automates the back-end requirements as well as acting as a platform to make it easier to access HMRs.
Not all pharmacists are licensed to carry out HMRs, and it can be difficult for doctors to find a pharmacist with the capability and/or availability to undertake a HMR, restricting doctors’ use of the service for their patients, thus the under-utilisation. The HMRR platform helps to solve this problem. It is essentially an App that integrates with the doctors’ management system and acts like ‘Uber’ – a doctor advertises a referral and the referral is then picked up by one of the ~335 accredited pharmacists currently using the marketplace platform. HMRR clips the ticket on each referral by charging both an origination fee and submission fee, which is paid by both the pharmacist and the doctor – GPs are reimbursed for their referral through the Medical Benefits Scheme; while pharmacists are paid for their work carrying out the review through the Pharmaceutical Benefits Scheme.
The upside by bringing HMRR into the CTQ group is:
-Currently, there are 300 GP practices on the HMRR platform. Across the CTQ network, CTQ have dealings with 5,000 GP practices – so there is upside to potentially sell the service to 10X+ more GPs.
-CTQ already provides medication reviews for Aged care centres in its EHS business: Residential Medication Management Reviews (RMMR) which is a review for a person living in an aged care home which is also subsidised under the Medicare Benefits Schedule. It is recommended (but not mandatory) that a resident has a medication review within ninety days of entering an aged care facility and the RMMR is free to the resident and to the nursing home. CTQ currently owns one of the largest providers nationally of this service (EHS), and has strong relationships with pharmacists who undertake these reviews. By adding the additional service (for at home reviews), CTQ can offer another revenue stream for pharmacists.
CTQ had been following the progress of the HMRR business for over 12 months prior to its acquisition. While revenue is still low ($300k), CTQ is confident HMRR has reached the point that both sides of the market place (doctors/pharmacists) can continue to grow quickly from here (+200% over the past 12 months). It offers a potential additional revenue stream for pharmacists (and doctors). With increasing trends of ‘hospital in the home’/homecare, and increasing medications, ensuring all the medications work together should become increasingly important. HMRR provides a niche market opportunity for CTQ where there is unlikely to be much competition, and adds another growth opportunity for the group.
While CTQ has been a significant cash burner over the last couple of years, we see signs that the business is moving to a stronger position over the next 12 months, with each of CTQ’s three businesses having positive outlooks:
-EHS is forecasting positive EBITDA of $1.5m for FY24.
-Sofihub is forecast to be cashflow positive when its installed devices reach 15000 in 2024. With only 7000 currently, this seems a stretch, but they do have on-going trials that will hopefully convert over the next 12 months.
-HMRR is expected to make a small but growing contribution to profit.
-CTQ has also undertaken a $1.2m cost out initiative related to technology development.
With the profitable EHS and HMRR businesses and a loss-making Sofihub business, it can be tricky to value CTQ. We are prepared to look through the loss-making business as it grows. We think there would be other players that would find CTQ’s current installed Sofihub customer base attractive if its growth ambitions aren’t achieved, providing an opportunity for CTQ to monetise this part of its business. That leaves the two profitable and growing medication management businesses that we think, on a sum of the parts basis, is likely to be worth significantly more than CTQ’s current EV of ~$3m.
The Executive Director of CTQ is Mark Simari. We have known Mark since his Paragon Care (ASX:PGC) days. Under Mark’s leadership, PGC’s market capitalisation grew from $2m in 2008 to over $200m by 2018 using an acquisitive capital allocation approach. Since taking over as Executive director of CTQ in April 2022, Mark has merged CTQ’s Ward Medication Management business with its competitor Mederev (to form EHS) and acquired the HMRR business. Given Mark’s track record, we expect further corporate activity akin to his time at PGC to drive growth in CTQ’s market capitalisation from its current $6m.
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