Sangoma Technologies is undervalued, PI Financial says

After a better than expected fourth quarter, PI Financial analyst David Kwan is maintaining his bullish stance on Sangoma Technologies (Sangoma Technologies Stock Quote, Chart TSXV:STC).

On Monday, Sangoma reported its Q4 and fiscal 2018 results. In the fourth quarter, the company posted Adjusted EBITDA of $2.5-million on revenue of $17.54-million, a topline that was up 128 per cent over the same period last year.

“Fiscal 2018 has been transformative for Sangoma, with revenue, EBITDA and EPS all more than doubling year over year,” CEO Bill Wignall said. “It is great to see the combination of intrinsic growth and the two acquisitions closed in 2018 producing the expected impact on the top line with sales exceeding $17-million for the first time in Q4, and delivering EBITDA of over $2.5-million for the quarter. I’m thrilled about Sangoma’s prospects following the Digium acquisition, and I’d like to thank everyone at the combined company for their dedication and co-operation, as we work through the integration phase, a process that is going very well so far. Over all, fiscal 2018 was an extremely positive year for Sangoma. The entire team here is eager to deliver a $100-million business in 2019 and excited to have grown the company to that stage.”

Kwan, who today maintained his “Buy” rating and one-year price target of $2.25 on Sangoma, says a re-rating may soon be in order and says he will review his estimates following the conference call this Friday, Oct. 26th.

“Our target price is based on 8.0x our CY19 Adj. EBITDA estimate,” the analyst explains. Superior execution by Management has been a key theme in recent years, as growth, margins, FCF, ROIC, and other key financial metrics have been moving solidly in the right direction. We remain confident in Management’s ability to successfully integrate Digium, which should eventually drive further improvements in these key metrics and help lead to a re-rating.”

Kwan thinks Sangoma will generate EBITDA of $9.6-million on revenue of $98.5-million in fiscal 2019. He expects those numbers will improve to EBITDA of $15.0-million on a topline of $116.0-million the following year.