Solium Capital is undervalued, says Euro Pacific analyst Andrej Krneta

The market is mispricing Solium Capital’s (TSX:SUM) potential, says Euro Pacific Canada analyst Andrej Krneta.

Today, after market, Solium will report its fourth quarter and fiscal 2014 results. Krneta expects that the company’s fourth quarter revenue will grow 10.7% year-over-year to $19.2-million, slightly lower than street consensus of $19.6-million. He thinks Solium will remain at the high end of its own EBITDA target of 20-25%.

The analyst says he is looking for clarity on the company’s international expansion plans.

“We expect organic growth in Canada with the US subdued due to the ever-present competitive pressures,” he said. “The rollout in the UK remains ongoing, but a surge in seats served through its white-labelling is unlikely. Thus, much of the focus should stay outside of North America”.

Krneta says that with uptake slower than expected in the UK, the Australian market remains a viable option for the company.

In a research update to clients yesterday, Krneta maintained his “Buy” rating and one-year target of $9.50 on Solium Capital, implying a return of 19% at the time of publication. He says further upside could come from a “more aggressive approach to capital allocations”, and thinks the current valuation is mispricing the company’s growth potential.

At press time, shares of Solium Capital were down 2% to $6.77.