The best is yet to come for TIO Networks, says Cantor Fitzgerald Canada

TIO Networks (TIO Networks Stock Quote, Chart, News: TSXV:TNC) has delivered record results for four quarters running but the best may be yet to come, says Cantor Fitzgerald Canada analyst Ralph Garcea.

On Wednesday, TIO reported its Q2, 2016 results. The company earned $1.66-million on revenue of $16.4-million, up 7.3 per cent over the same period last year.

“We had a fantastic quarter,” said CEO Hamed Shahbazi. “The strong year-to-date growth in revenue and earnings reflect the successful integration of acquired entities, execution on margin expansion opportunities, stringent cost control and strong foreign exchange tailwinds. Our businesses are performing well providing us with a consistent and solid base of earnings. Management’s near-term focus is to ensure a smooth transition of the Softgate systems acquisition into our shared services infrastructure program and make sure that we benefit from the key synergies provided for by the transaction. Our overarching longer-term focus is to continue to organically and inorganically build a cohesive and strong competitor in the consumer bill payment and receivables management marketplace for bill issuers of all sizes and needs.”

Garcea says TIO’s Q2 bested his expectations on both the top and bottom line. The analyst says he expects the pending acquisition of Softgate will provide immediate revenue synergies and contribute to robust revenue this year and beyond.

“The transaction is transformational and provides TIO with additional scale as Softgate adds ~24M transactions per year to TIO’s overall business and positions TIO as one of the leading providers of bill payment processing and receivables management services to national and regional utility, wireless, and cable bill issuers in North America,” says Garcea. “With the addition of Softgate, TIO will have a national platform from which to provide extensive non-bank financial services to the unbanked, under-banked, and unhappily banked millennial population. TIO has guided for pro-forma revenues of $100M+ and EBITDA of $10M+.”

Last July, TIO 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.

In a research update to clients today, Garcea maintained his “Buy” rating and one-year price target of $3.00 on TIO Networks, implying a return of 55 per cent at the time of publication.

Disclosure: Cantech Letter editor Nick Waddell owns shares of TIO Networks.

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