Laurentian lowers price target on Syncordia Technologies, maintains "Buy"

A quarter that exposed margin compression and a deferred sales profile has Laurentian Bank Securities analyst Nick Agostino feeling a little less bullish about Syncordia Technologies (Syncordia Technologies Stock Quote, Chart, News: TSXV:SYN).

Last Thursday, Syncordia reported its Q3, 2016 results. The company lost (U.S.) $602,390 on revenue of $3.67-million.

“I am pleased to report sequential growth of adjusted EBITDA,” said CEO Michael Franks. “In the quarter, we successfully on-boarded Air Medical and began billing operations for them. Since acquiring HSI in October, 2014, we have signed a number of new contracts. All of these contracts have been on-boarded and are performing at or above management’s expectations in terms of volume and revenue. One of the two new contracts that we have announced concurrently with this press release was procured through the request for proposal process that has been a focus of our sales and operations teams since the acquisition of HSI. We are excited about our pipeline in FY 2017 and look forward to continued contract wins. Lastly, we are continuing to reduce corporate costs. We have lowered head count and have reduced expenditure. Further reductions to corporate costs are under review, and an update will be provided when we report our Q4 FY 2016 results following our March 31, 2016, fiscal year-end.”

Agostino says the quarter was essentially in-line with his expectations, but did contain some disagreeable aspects.

“We welcome the new contract signings but are disappointed deals from SYN’s US$3.5M sales pipeline have yet to be announced; some were expected by late 2015,” says the analyst. “This causes us to defer our sales profile further. We continue to model 50% of the noted sales pipeline, but defer to F2018 (from F2017) for full on-boarding + ~14% organic growth (unchanged). Our margins are adjusted accordingly. Furthermore with SYN ending FQ3 with US$10.3M in cash vs. debt of US$12.3M (final tranche repayment due Nov. 2017) and given the trading multiple, we believe SYN will defer its M&A strategy until the debt is refinanced and/or a meaningful portion of its sales pipeline is converted to cash. Pleasing, SYN took no HSI goodwill impairment charge as of FQ3.”

In a research update to clients today, Agostino maintained his “Buy” rating but lowered his one-year price target on Syncordia from $1.80 to $1.25.