Paradigm lowers target on BSM Technologies, keeps “Buy” rating

An increased level of investment in sales, marketing and R&D will impact BSM Technologies’ (BSM Technologies Stock Quote, Chart, News: TSXV:GPS) EBITDA margins, says Paradigm Capital analyst Gabriel Leung.

In a research update to clients yesterday, Leung maintained his “Buy” rating on BSM, but lowered his one-year target on the stock from $3.00 to $2.75. The analyst’s new price target implied a return of 67% at the time of publication.

Leung says that while he is maintaining his fiscal 2015 revenue forecast of $34.6-million, he is lowering his expectation on EBITDA margins from 22.8% to 15.5%. He says this actions reflects his view that “the company will likely increase investments in key operating areas, such as sales and marketing and R&D”.

The analyst says he remains bullish on BSM because of a growing backlog of enterprise customers, its strong vertical focus, and what he says are initial signs of cross-selling activity. He notes that the telematics space is a particularly acquisitive one and thinks BSM is a potential takeout target.

In BSM’s upcoming fourth quarter, Leung expects the company will generate EBITDA of $946,000 on revenue of $7.4-million, with 12.8% EBITDA margins.

At press time, shares of BSM Technologies were up 1.2% to $1.70.

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