Cantor Fitzgerald maintains “Buy” on Pivot Technology after strong Q3

A better than expected third quarter has Cantor Fitzgerald Canada analyst Ralph Garcea feeling bullish about Pivot Technology Solutions (Pivot Technology Solutions Stock Quote, Chart, News: TSXV:PTG).

Yesterday, Pivot Technology reported its Q3, 2015 results. The company lost (U.S.) $2.6-million on revenue of $414.5-million, a topline that was up 15.2 per cent over 2014’s third quarter.

“While we experienced solid revenue growth from both major and non-major accounts, profitability suffered as a result of increased contribution from lower-margin product sales, lower service revenues, as well as competitive pressures in the storage segment compared to last year,” said CEO Warren Barnes. “In general, we experienced relatively healthy levels of business activity, with the exception of storage offerings which continue to see competitive pressure and commoditization influence, while we continued to grow our customer base. In that respect, we benefited from the delivery of a sizable data centre project for one of our new customers.”

Garcea notes that Pivot beat his expectations on the topline but its EBITDA was impacted by revenue mix. The analyst points out that the company’s revenue became more concentrated in the quarter, with its top ten customers accounting for 60 per cent of total revenue, versus 55 per cent in the third quarter of last year, and 50 per cent year-to-date. But he says the quarter leaves Pivot with plenty of flexibility.

“PTG declared a quarterly cash dividend of C$0.0075/share (C$0.03/yr), payable on December 15, 2015 (record date of December 2, 2015),” says Garcea. “CFOPS was $4.8M with cash at qtr end of $12.5M. Plenty of room to grow the dividend, possibly start a NCIB and start looking at M&A again – especially now that there are no more contingency payments and the credit facility has been restructured (interest payments lower by $1-1.5M/year) to provide more financial flexibility.”

In a research update to clients yesterday, Garcea maintained his “Buy” rating and one-year target price of $1.50 on Pivot Technology Solutions, implying a return of 189 per cent at the time of publication.