Cortex Business Solutions is still “significantly undervalued”, Haywood says

A quarter that came in slightly better than he expected has Haywood analyst Pardeep Sangha maintaining his bullish target on Cortex Business Solutions (Cortex Business Solutions Stock Quote, Chart, News: TSXV:CBX).

On Tuesday, Cortex reported its Q4 and fiscal 2017 results. In the fourth quarter, the company posted Adjusted EBITDA of $200,000 on revenue of $2.9-million, a topline that was up 31 per cent over the same period last year.

“Cortex continues to deliver improved results for the year and for the latest quarter,” said interim CFO Henry Pham. “With a shored up balance sheet, extinguishment of the rebate provision and no debt, the pivot towards sustained profitability is well under way. Had it not been for the recognition of an onerous contract pertaining to the company’s previous head office lease in Calgary that expires in January, 2018, Cortex would have reported positive Q4 2017 net income, building on similar results from Q3 2017. We will look to build on the results of [fiscal 2017], and assure to our existing and prospective customers alike that Cortex is here to stay, and to help deliver value from the Cortex brand.”

Following the quarter, in a research update to clients today, Sangha maintained his “Buy” rating and one-year price target of $6.00 on Cortex, implying a return of 41.2 per cent at the time of publication. The analyst explained the math behind his target and how it equates to Cortex being a buy.

“We believe Cortex is significantly undervalued,” Sangha says. “Cortex is currently trading at 2.4x EV/Revenue multiple of our CY18 estimates, which is lower than its peer group average of 4.7x EV/Revenue multiple of consensus CY18 estimates. We arrive at our target price by applying a 3.7x EV/Revenue multiple to our FY18 forecast. Our target price represents a 2.8x EV/Revenue and 13.5x EV/EBITDA multiple of our FY19 forecasts.”

Sangha thinks Cortex will generate EBITDA of $1.3-million on revenue of $13.6-million in fiscal 2018. He expects those numbers will improve to EBITDA of $3.8-million on a topline of $18.5-million the following year.

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