Solium Capital (TSX:SUM) is a tech that should be on investors’ radar, National Bank Financial analyst Richard Tse says.
In a research report to clients today, Tse initiated coverage of Solium Capital with an “Outperform” rating and one-year price target of $12.50, implying a return of 22 per cent at the time of publication.
Tse says that while most Canadians won’t know Solium, it has made great strides from its humble beginnings.
“Since its vision was born in 1999 and subsequent IPO in 2001, Solium has quietly become a leader in its market of equity plan administration,” he says. “During that period and with consistent execution, investors have been rewarded handsomely as well. Considering the IPO price of $1 in 2001, the stock at the time of writing is trading at just over $10 today, and over the past five years the stock has seen a +400% appreciation (+900% since IPO). Not bad for a little benefits administration company that first started by accepting payments in beer.”
The analyst says there is a lot to like about the way Solium is currently set up.
“For its humble beginnings, Solium is no longer the new kid on the block -its run rate of revenue for 2017 based on our estimates is tracking to $87 million,” the analyst notes. “The quality of that revenue is also high given that ~95% of it is recurring. At the same time, this seemingly small company on the world stage has been able to sign some of the world’s largest companies to its platform as customers and partners, like Barclays in the UK and more recently Morgan Stanley and UBS in the United States, the latter being an expansion. And with expansion offices in France, Australia and Barcelona over the past two to five years, we see the Company on the path to conquer the world of equity administration. If that weren’t enough, we believe the Company has a “clean” capital structure and balance sheet with no long-term debt, $67 million in cash and cash flow from operations of around $9 million this year.”
Tse thinks Solium Capital will generate Adjusted EBITDA of (all figures USD) $9.79-million on revenue of $87.04-million in fiscal 2017. He expects those numbers will improve to EBITDA of $11.91-million on a topline of $95.52-million the following year.