Ron Shuttleworth initiates coverage of BSM Technologies with a buy rating, $2.75 target

M Partners analyst Ron Shuttleworth says BSM Technologies (BSM Technologies Stock Quote, Chart, News: TSXV:GPS) is a Software-as-a-Service turnaround story worth paying attention to.

This morning, in a research report to clients, Shuttleworth initiated coverage of BSM with a BUY rating and a one-year target of $2.75, implying a 23% return.

Shuttleworth says BSM, which manages mobile logistics assets across four verticals (energy, construction, utilities and rail) is showing “emerging dominance” in the rail segment of its business. He thinks the company can create earnings leverage through a recurring revenue business model in market niches that are tightly defined. He notes that BSM has already landed four of the six Class One railroads in North America, yet at a deployment completion rate of just 15% so far, there is still about $70-million in revenue left in the rollout of that vertical alone.

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The M Partners analyst notes that BSM is really a tale of two companies. The pre-2008 version had languished on the TSX Venture Exchange for nearly a decade before the current CEO Aly Rahemtulla’s merchant bank took control, stabilizing its balance sheet and setting the company on a new, more focused path.

Outside of the rail vertical, Shuttleworth says there is more competition. But he says he is not counting the company out of its remaining three segments, noting that BSM has been able to consolidate a stronger position due to some recent acquisitions, and has put together a management team with decades of experience in the space, inclduing Pierre Belanger, the CEO of Datacom Wireless, who sits on the company’s board, and Owen Moore, who founded Grey Island Systems, who is Executive VP.

Shuttleworth derives his price target on BSM by applying a 17.0x EV/EBITDA multiple to his fiscal 2014 adjusted EBITDA forecast of $5.3-million.

Shares of BSM Technologies closed today down 1.79% to $2.20.

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