Mogo has 59 per cent upside, Mackie Research says

A quarter he describes as strong has Mackie Research Capital analyst Nikhil Thadani feeling bullish about Mogo (Mogo Stock Quote, Chart, News: TSX:MOGO).

Last Wednesday, Mogo reported its Q2, 2017 results. The company reported revenue of $11.5-million, a topline that showed the resumption of sequential revenue growth based mainly on increased other product revenue and fees.

“”With 95-per-cent year-over-year growth in our member base, we are introducing more and more Canadians to Mogo’s unique value proposition, including a whole new generation of consumers that are just starting to use financial services,” said CEO David Feller. “Our offering now includes four products in one digital account, and we continue to enhance and optimize the user experience and build out what we believe is the leading digital and mobile first financial platform in Canada. To continue to build our brand and member base, we are also expanding across Canada, and we recently launched in New Brunswick, Newfoundland and PEI. As the latest EY fintech adoption index highlights, we are still at the early stages of the digital transformation in Canada, with less than 20 per cent of Canadians looking outside of traditional financial providers like banks to manage their financial health. This has more than doubled in the last few years, and as this shift continues, we believe Mogo is uniquely positioned to emerge as one of the leaders in Canada with a clear strategy: continue to acquire new members at a low cost; build trust and credibility by providing a compelling and disruptive value proposition; and continue to increase our share of members’ financial wallets by adding new products and services that make it easier for them to manage and control their financial health.”

Thadani thinks Mogo is a bit ahead of track, and thinks the stock should climb back towards its IPO price in the coming months.

“Our key investment thesis for Mogo has been that we believe the stock offers upside on revenue growth execution. Q2 results were a strong first step in this direction, the analyst says. “On a 2018 basis, Mogo trades at ~2x net sales vs. FinTech names at ~5x. Recall, we exclude funding debt from net debt and account for loan book interest revenue net of funding interest expenses. Our $7/sh price target reflects a discount revenue multiple of 3x net 2018 revenue relative to FinTech stocks. As revenue growth execution continues in H2, a valuation inline with FinTech peers implies a stock price ~$9/sh, close to Mogo’s IPO debut.”

In a research update to clients last week, Thadani maintained his “Speculative Buy” rating and one-year price target of $7.00 on Mogo, implying a return of 59 per cent at the time of publication.

Thadani thinks Mogo will generate EBITDA of $1.23-million on revenue of $47.8-million in fiscal 2017. He expects those numbers will improve to EBITDA of $8.3-million on a topline of $69.4-million the following year.

Disclosure: Mogo is an annual sponsor of Cantech Letter and editor Nick Waddell owns shares of the company.