Solium Capital is undervalued, says Haywood

Following the company’s fourth quarter results, Haywood analyst Pardeep Sangha is feeling bullish about Solium Capital (Solium Capital Stock Quote, Chart, News: TSX:SUM).

Yesterday, Solium reported its Q4 and fiscal 2016 results. In the fourth quarter, the company posted Adjusted EBITDA of $2.55-million on revenue of $18.87-million, a topline that was up 11.7 per cent over the same period last year.

Sangha says Solium’s revenue number came in below his estimate of $19.4-million, but notes that it handily beat his EBITDA estimate of $1.8-million.

“Revenue was positively impacted by an increase in transactional revenue and growth in the Canadian market, explains the analyst. “Transactional-based revenue increased by $2.5M in Q4FY16, or 13% as compared to Q4FY15. Revenue in Canada was up 9.4 % in the full year due to increased transactional activity.

Sangha says the impact of the quarter was mixed, and explained why in a research update to clients today.

“Despite announcing the large Morgan Stanley deal in Q4, Solium will experience EBITDA margin pressures in FY17 as it ramps up to support this contract,” he said.

The analyst says this is the reason that despite the better bottom line numbers, he today maintained his one-year target of $9.70 and “Buy” rating on Solium. His target implied a return of 20.2 per cent at the time of publication.

Sangha thinks Solium will generate Adjusted EBITDA of $12.0-million on revenue o $85.8-million in fiscal 2017. He expects these numbers will improve to EBITDA of $18.9-million on a topline of $104.9-million the following year.

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