Laurentian lowers price target on BSM Technologies, maintains buy rating

A softer than expected third quarter has led Laurentian Bank Securities analyst Nick Agostino to lower his price target on BSM Technologies (BSM Technologies Stock Quote, Chart, News: TSXV:GPS).

Yesterday, BSM reported its third quarter, 2015 results. The company lost $522,000 on revenue of $7.7-million, up 19% over the $6.4-million topline the company reported in the same period last year.

“Top-line growth, investments in our business, and our continued efforts to strategically manage operating costs have driven year-over-year improvements in both gross profit margins and EBITDA margins, as compared to the prior period,” said CEO Aly Rahemtulla. “Macro headwinds in the oil and gas sector continue to have a negative impact on our subscriber numbers; however, we anticipate that continued growth in our rail business will offset these declines in the coming quarters. We believe that the recently announced arrangement with Webtech Wireless will create a bigger, better and stronger BSM.”

Agostino notes that BSM’s revenue number came in below his (and the street consensus) estimate of $8.3-million. In a research update to clients today, the analyst explained why he was cutting his target price on BSM from $2.25 to $1.75.

“We lower our 2015 and 2016 estimates…to reflect the lower FQ3 results, lower subscriber base and high churn,” said Agostino. “For F2015 and F2016 we model organic growth of 10% (from 12%), at the low end of targeted guidance of 10%-20%. We lower our hardware gross margins to 31% from 32% while increasing subscriber gross margins to 79% from 78%.”

Agostino today maintained his “Buy” rating on BSM. His new price target of $1.75 implied a return of 101.1% at the time of publication.

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