Cortex Business Solutions’ energy exposure still a headwind, says PI

PI Financial analyst David Kwan says Cortex Business Solutions (Cortex Business Solutions Stock Quote, Chart, News: TSXV:CBX) is battling, but weaker energy prices are still a drag on the company.

Last Thursday, Cortex Business Solutions reported its Q3, 2016 results. The company lost $564,981 on revenue of $2.4-million, a topline that was down nine per cent over the same period last year.

“The company continues the financial discipline required to drive costs to appropriate levels while remaining focused on investing in strategic priorities to enable long-term growth,” said CEO Joel Leetzow. “Our strategy remains expanding further into other verticals to minimize the fluctuations in commodities pricing. As well, we are recommitting to our growth strategies in the United States by hiring a Texas-based VP of sales, giving us boots on the ground in our targeted geographical area.”

Kwan says the quarter came in softer than expected. He thinks the company continues to face short term headwinds, even in the face of some prudent recent moves.

“While CBX has done a great job of reducing costs and the related cash burn (effectively cash flow neutral in the last two quarters), revenue growth remains the key challenge, as the downturn in the energy sector is still the key headwind,” says the analyst. “The recent rebound in oil prices is encouraging but we believe oil prices need to be materially higher before CBX would see a significant improvement in revenues. That said, the valuation is attractive at 1.5x CY17 EV/Sales, at a significant discount to the peers at just under 3.0x. Despite the obvious headwinds, we believe CBX’s risk/reward profile remains positive.”

In a research update to clients Friday, Kwan maintained his “Buy” rating and one-year price target of $4.00 on Cortex Business Solutions.

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