TIO Networks’ (TIO Networks Stock Quote, Chart, News: TSXV:TIO) M&A activitiy is driving growth for the company, says Haywood analyst Pardeep Sangha.
In a research report to clients Tuesday, Sangha initiated coverage of TIO with a “Buy” rating and one-year target price of $2.30, implying a return of 62% at the time of publication.
In July, TIO Networks announced it would acquire consumer retail bill payment solutions Softgate Systems for approximately (U.S.) $31-million. The company said the deal would position TIO as the largest North American provider of walk-in bill payment services and increase its revenue number to over (C) $100-million.
Sangha says the acquisition of Softgate is “transformative” and believes the capital markets will respond when the deal is closed, as it immediately positions TIO as the leader in walk-up bill payment services. The analyst compared the company’s current valuation to that of its peers.
“We believe TIO is undervalued considering its strong revenue and Adjusted EBITDA expectations for 2016,” says Sangha. “We believe additional acquisitions and new biller announcements are potential catalysts for future share price appreciation. TIO is currently trading at 0.8x EV/Revenue and 7.9x EV/EBITDA based on calendar 2016 estimates, compared to its financial services peer group average of 2.2x EV/Revenue and 8.6x EV/EBITDA and Canadian software comparables at 4.0x EV/Revenue and 14.1x EV/EBITDA.”
At press time, shares of TIO Networks on the TSXV were up 8.1% to $1.46.