BSM Technologies is undervalued, says Clarus Securities

A major contract win that has the potential to grow even bigger balanced out a mixed Q3 for BSM Technologies (TSX:GPS) that featured a broad topline miss, says Clarus Securities analyst Eyal Ofir.

Yesterday, BSM reported its Q3, 2014 results. The company lost $389,000 on revenue of $6.45-million, a bump of 38% over last year’s Q3 topline.

“We continue to make key investments in both our organic growth initiatives as well as in purchasing and integrating targeted assets,” said CEO Aly Rahemtulla. “These investments are being made with a view of accelerating future growth. We are in the process of launching our next-generation hardware platform that features both Wi-Fi hot spot and camera technology on a cost-optimized platform. The impact of our recent M&A activities, sales successes and organizational investments will be more fully recognized in our fourth-quarter financial results.”

Ofir notes that revenue BSM’s Q3 revenue of $6.4 million was below his $7.0 million estimate and the street consensus of $6.9 million. He says the miss came from lower than expected hardware revenues. While he admits this was disappointing, he was encouraged by the news that the company had received an order from what it described as “one of North America’s largest construction, mining and engineering firms”. He notes that management sees the win as “very strategic” and one that ultimately has the potential to become its largest client, and that BSM hopes to carve out a considerable space in the construction vertical the way it has in rail.

The Clarus Securities analyst believes that BSM is well positioned heading into the fall. He says the company is generating positive customer momentum and will also benefit from a full quarter’s contribution from its recent acquisitions.

In a research update to clients this morning, Ofir maintained his BUY recommendation and $4.00 one-year share target on BSM Technologies, implying a 92.3% return at the time of publication.