Solium Capital (TSX:SUM) can continue its growth through geographic expansion and is well capitalized enough to be a consolidator in its space, says PI analyst Pardeep Sangha.
Yesterday, shares of Solium were up sharply after posting a strong start to its fiscal 2014. In the first quarter, the company earned $4.6-million on revenue of 21.7-million, a topline increase of 20% over the same period last year. The bottom line number was a 71% uptick.
Sangha had several takeaways from the quarterly conference call that followed the release of the numbers, which he notes exceeded consensus estimates. The PI analyst says that with a 75% market share among the TSX 100 companies, Solium will need to expand its reach geographically. Management, he says, addressed this matter, highlighting the fact that the company recently won a large RFP in Australia and will increase its investment there. Penetration in the U.K. is taking longer, but management remains optimistic about growth there, says Sangha.
The PI analyst says Solium is sufficiently capitalized to be a consolidator in the space, and that management is expecting to make additional acquisitions this year.
Following the quarterly results, Sangha upped his top and bottom line forecast on Solium. He now expects the company will generate $21.8-million in EBITDA on revenue of $80.3-million in fiscal 2014, and $25.6-million in EBITDA on a topline of $91.2-million in 2015.
In a research update to clients this morning, Sangha maintained his “Buy” recommendation on Solium Capital, but increased his one-year target price from $8.25 to $9.00. He says he believes the company’s superior growth and high recurring revenue warrant a higher valuation multiple than it currently possesses.