VersaPay is a compelling legacy-to-cloud proposition, says Haywood’s Voci

VersaPay CEO Craig O’Neill. VersaPay (TSXV:VPY) is well positioned to move to a higher-margin cloud-based business, says Haywood analyst Massimo Voci.

In a research report to clients yesterday, Voci initiated coverage of VersaPay with a “Buy” rating and a one-year target price of $1.70, implying a return of 33% at the time of publication.

Voci thinks VersaPay legacy business, which has recurring revenue of 95%, can continue to fund its SaaS-based electronic payment bushiness called ARC, which he expects will incur losses until 2016. He thinks the company is well positioned to move to this higher margin business because it has invested in product development, brought in a fresh management team, and has raised sufficient capital.

The Haywood analyst thinks VersaPay addresses a key barrier to adoption from Small and Medium Sized Businesses looking to adopt a cloud-based SaaS solution because it can be deployed quickly and has little or no setup costs. He notes that the company has already signed key partnerships with the likes of Heartland Payment Systems, TD Mechant Services, and Mastercard International. He says that while these deals create an indirect sales channel they may also have the effect of reducing the company’s sales visibility.

Voci says the market opportunity for Arc is, however, clear. He notes that the 2013 AFP Electronic Payments Survey found that US based companies with revenue below $1-billion received far more B2B payments by cheque than did those with more than $1-billion in revenue. “This,”says Voci, “underscores the need smaller organizations have with respect to alternative forms of payment.”

At press time, shares of VersaPay were up 4% to $1.30.