Computershare exit may unlock Solium Capital’s value, say analysts

One curious aspect of Calgary-based software company Solium Capital’s (TSX:SUM) structure was that one of its primary competitors was also its largest shareholder.

Until this week, Australia-based Computershare owned 19.7% of Solium. But Computershare is now out; the company announced it has sold its entire holding, which it acquired in 2010, for $29.2-million.

The transaction, which was facilitated by PI Financial, GMP Securities, and M Partners, saw Computershare’s position dispersed among various institutional investors.

Solium CEO Mike Broadfoot says the transaction could be a plus for shareholders.

“Solium will always be grateful for the investor support it received from Computershare at an important inflection point in the Company’s lifecycle, when Solium bought Computershare’s North American grant-based plan assets in 2010,” he said. “A number of Solium’s current shareholders have expressed satisfaction that this transaction should, theoretically, provide the opportunity for more trading liquidity in the Company’s stock.”

PI analyst Pardeep Sangha agrees. In a January report to clients, he noted that Computershare enjoyed a much more generous valuation than Solium, something it shared with Solium’s peer group as a whole. Sangha pointed out that despite having higher margins and revenue growth, Solium was valued on an EV/Sales ratio of 1.7x and an EV/EBITDA ratio of 7.1x FY13 estimates. Meanwhile, Solium’s peer group, he noted, was valued at an EV/Sales multiple of 3.4x and an EV/EBITDA multiple of 12.6x consensus FY13 estimates.

Sangha, who has a BUY rating and $4.50 target on Solium, says much of the valuation problem is simply because Solium is a relatively small, unknown Canadian company.

M Partners analyst Ron Shuttleworth agrees. He anticipates that Solium Capital’s global footprint will grow as new products are added to its SaaS platform, and investor awareness of the company increases. On February 15th, Shuttleworth initiated coverage of Solium Capital with a BUY rating and twelve-month target price of $4.75.

Founded in 1999, Solium Capital counts Transalta, Shaw Communications and Shell Canada -in fact 75% of the top 100 companies listed on the TSX – among its clients. Last November, the company partnered with Barclays’ Corporate & Employer Solutions unit to create a white-label version of the Solium Shareworks platform that will be offered to Barclay’s more than 8500 clients.

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