Cortex Business Solutions (TSXV:CBX) first quarter results were a return to growth and another signal that the stock is undervalued, says Haywood analyst Pardeep Sangha.
Yesterday, Cortex reported its Q1, 2017 results. The company lost $92,787 on revenue of $2.33-million, a topline that was down six per cent from the $2.51-million the company posted in the same period last year.
“As we share Q1 F2017 results today, I continue to be encouraged by the progress that we have made as an organization in the past year. My confidence in this Cortex management team to now deliver on our growth and financial strategy has never been stronger,” said CEO Joel Leetzow. “With the restructuring and internal transformation of Cortex now being mostly complete, F2017 is going to be a year of increased sales momentum with new customers and a continued focus on increasing our value to our current customers. “Q1 results for F2017 provide further proof that our goal of profitability is within reach this fiscal year. These Q1 results were achieved despite an increase in sales and marketing expenses during the quarter. Although there were no new buyers signed in Q1 F2017, the business coming from within our current customer base was strong, and the results can be seen with our 777-per-cent improvement in professional services revenue quarter over quarter.”
Sangha says Cortex’s Q1 results were in-line with his expectations. He notes that while revenue was down year-over-year the company achieved 11 per cent sequential growth over Q4, 2016, a development the analyst says reflects the fact that it has completed its restructuring and is now returning to growth. He notes a positive trend in a metric he views as important; recurring revenue.
“Recurring access fee revenue increased 6% YoY despite the decline in total revenue,” says Sangha. “Access fee revenue for the quarter was $1.4M, up 6% from $1.3M in Q1FY16. Access fees now make up 58% of total revenue, up from 51% in Q1FY16. Recurring Access fee revenue increased over the past year as the Company shifted its business model to higher recurring access revenue in favor of transaction based usage revenue.”
In a research update to clients today, Sangha maintained his “Buy” rating and one-year price target of $4.00 on Cortex, implying a return of 45.5 per cent at the time of publication.
Sangha expects Cortex will generate EBITDA of $200,000 on revenue of $10.9-million in fiscal 2017. He thinks these numbers will improve to EBITDA of $1.1-million on a topline of $13.4-milion the following year.