The rise of Solium Capital (TSX:SUM) was one of the real Canadian tech success stories of 2014, but M Partners analyst Steven Kraft says there is still a lot of upside in the stock this year.
In a research report to clients recently, Kraft reinstated M Partners coverage of Solium with a BUY recommendation and a one-year target of $9.75, implying a 23.9% return over yesterday’s closing price.
Kraft says that at 14.0x 2015 EV/EBITDA Solium is trading below its peers, which trade at a 20.4x multiple. He says the company’s strong business will create the cash necessary to expand and improve its growth profile to fill this gap.
The M Partners analyst says he believes Solium will grow its EBITDA by 23% between 2014 and 2015 by migrating customers onto its Shareworks platform. Shareworks is Solium’s equity management software platform that allows managements to administer equity plans that reduce legal, tax and expensing risk. He believes that the excess cash flow that is generated above 25% EBITDA margins can and will be reinvested into expansion.
Kraft says Solium has been proved to be shrewd with regard to its acquisitions. He says the company now has a solid track record of acquiring customers and advisors. He points out that this has had the effect of providing localized knowledge and increasing the barrier to entry for the company’s competitors.
At press time, shares of Solium Capital were down 0.8% to $7.81.