A private placement that saw Fidelity become Versapay’s (TSXV:VPY) largest shareholder is a bullish sign, says PI Financial analyst David Kwan.
On Friday, Versapay announced it had closed non-brokered private placement of 6.29 million common shares of the company at a price of $1.70 per common share for gross proceeds of approximately $10.7-million.
Kwan says this development changes not only the company’s cap structure, but its opportunities going forward.
“We understand that Fidelity accounted for most of the financing (~90%), with existing shareholder Stableview Asset Management accounting for the rest (~10%; maintaining their stake). Fidelity is now VPY’s largest shareholder, as it owns ~15% of the stock,” the analyst notes. “(The vote) of confidence from Fidelity and the large cash balance should help secure large enterprise customer wins and new channel partners. We believe the endorsement by Fidelity and the significantly strengthened balance sheet should go a long way in helping VPY win new large enterprise customers and channel partners (especially in the US) who may have previously been concerned about doing business with a small, emerging fintech (e.g., potential questions about their financial strength).”
In a research update to clients today, Kwan maintained his “Buy” rating on Versapay, but raised his one-year price target from $3.00 to $3.50, implying a return of 75 per cent at the time of publication.
Kwan thinks Versapay will generate EBITDA of negative $7.1-million on revenue of $2.7-million on fiscal 2017. He expects those numbers will improve to EBITDA of negative $3.1-million on a topline of $8.9-million the following year.