Improved operating leverage should drive better results for BSM Technologies (TSXV:GPS) starting with the company’s second quarter results, says Laurentian Bank Securities analyst Nick Agostino.
On Wednesday after market close, BSM will report its Q2, 2015 results. Agostino thinks the company will post EBITDA of $865,000 on revenue of $8.1-million.
Agostino expects BSM will see from benefit from outsourcing its hardware, particularly with regard to gross margins. He thinks this will take full effect over the next two quarters, when older inventory is exhausted and new, higher margin products begin to comprise a larger portion of the overall mix.
The analyst believes things are on the upswing for BSM.
“With a view that FQ1 sales were a trough for the company and management’s commentary that the F2014 investment phase is now complete, we expect FQ2 results to highlight the onset of operating leverage, along with margins expansion noted above, to help drive EBITDA margins toward the 20% level over the coming quarters,” said Agostino. “With that, we forecast QoQ revenue growth of 3.5% vs. opex growth of 1.8% yielding EBITDA margins of 10.6%, up 60bps QoQ.”
In a research update to clients today, Agostino maintained his “Buy” rating and one year target of $2.25, implying a return of 136.8% at the time of publication.