Solium Capital’s growth is lumpy but consistent, says Haywood

Haywood analyst Massimo Voci says Solium Capital (TSX:SUM) delivered better than expected first quarter results depite soft transaction volumes, underlining that the company’s long term trend is upward.

On Tuesday, Solium Capital reported its Q1, 2015 results. The company earned $4.33-million on revenue of $24.6-million, a 13% increase over last year’s topline.

Voci notes that Solium’s transactional based revenue was flat in the first quarter despite the fact that transaction value per participant was actually 23% lower than last year’s Q1. The analyst says this suggests “significant” growth in the underlying number of participants and in other revenue streams.

Voci says investors in Solium should be aware that the company’s upward trajectory is not a straight line.

“Management has reiterated its target Adjusted EBITDA margins of 20% to 25%, and expects that the current investment in sales will result in revenue, though the exact timing of this revenue generation is uncertain,” he said. “We expect the Company will be able to keep its Adjusted EBITDA margins within the target range while undergoing this investment in opportunities outside of Canada. As such, we believe investors should be wary of the potential near-term lumpiness in results due to both the variability in activity-based reoccurring revenue and the difficulty in timing the revenue generation from international expansion efforts. However, over the longer-term, we expect margins have the potential to scale above the current targeted range on an annual basis.”

Voci says that while Solium trades in line with its peer group, he believes it deserves a higher multiple because of its track record of growth.

In a research update to clients today, Voci maintained his “Buy” rating and one year target price of $8.30, implying a return of 17% at the time of publication.