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Stock to watch: QHR Technologies a potential takeover target

QHR has about a 30 per cent market share in the electronic medical-record market in Canada.

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QHR Technologies Inc.

Thursday's close: 52 cents a share

52-week trading range: 39 to 63 cents a share

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Annual dividend: none

Analysts' ratings: There are three buys, no holds and no sells, according to Bloomberg data. Target prices ranged from $1 a share as estimated by MGI Securities analyst Massimo Voci, to $1.25 a share by Paradigm Capital analyst Gabriel Leung.

Recent history: Shares of the Kelowna, B.C.-based electronic medical records business has lost about 16 per cent over the past year on concerns about some of its acquisitions. Some investors bailed because QHR reported losses after purchasing Healthscreen Solutions Inc. in late 2011. Last fall, the company then acquired Open EC Technologies Inc., a company which provides billing and data transfer between health care providers, brokers and insurers in the United States. That business differs from the medical software business, which is largely subsidy-driven with funding for doctors coming from some Canadian provinces. While shares of QHR fell to a 52-week low of 39 cents last October, the stock has been trending higher lately. Last month, QHR reported stronger-than-expected fourth-quarter results. It posted record sales of $8.1-million with the electronic medical-record portion up 34 per cent from a year earlier.

Manager insight: QHR, which has about a 30 per cent market share in the electronic medical-record market in Canada, is a potential takeover target, says David Barr, a portfolio manager and chief investment officer with Vancouver-based PenderFund Capital Management Ltd. He owns more than 10 per cent of QHR in his funds.

A division of Vancouver-based telecom firm Telus Corp. is a major player in this medical niche, and is among the possible acquisitors, suggested Mr. Barr, who has owned QHR stock since 2009 but bought more this quarter. Telus entered into the electronic medical records business with the purchase of Emergis Inc. in 2007 for $763-million.

Electronic medical records are becoming a more accepted method for doctors to store and share patient information, but the adoption rate in Canada is only about 56 per cent, according to a 2012 Commonwealth Fund International Health Policy Survey. In countries like Britain and Australia, the adoption rate is more than 90 per cent.

Telus Health bought MD Practice Software LP, a subsidiary of the Canadian Medical Assocation, for an undisclosed price earlier this year. Past acquisitions have included B.C.'s Wolf Medical Systems and Quebec-based KinLogix.

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Mr. Barr, who has a one-year target of $1 a share for QHR, expects more investors will take notice of the company when it reports its first-quarter results. "The company made money in the fourth quarter, and was showing very good traction," he said. "If you look at the analysts' reports, they are forecasting the first three months [of this year] will be a record quarter."

The risk to this stock is the fact that QHR is a small company so the ability to maintain profitability and expand the business can be a challenge, he said. "But we think they are on the right track."

QHR's founder and chief executive officer Al Hildebrandt is still the largest single shareholder with a 15 per cent stake so he is looking to increase the value of the company, he said. "That is critical in small-cap situations."

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