Beacon cuts price target on ProntoForms, maintains “BUY” rating

Following a tough quarter, Beacon Securities analyst Vahan Ajamian has lowered his price target on ProntoForms (ProntoForms Stock Quote, Chart, News: TSXV:PFM), but the analyst still thinks the stock is undervalued.

On November 9, ProntoForms reported its Q3, 2017 results. The company lost $1.3-million on revenue of $3.05-million, a topline that was up one per cent over the same period last year.

“We have built sales teams specialized in new customer acquisition and expansion of existing customers and these motions continue to fuel growth, delivering 24-per-cent recurring revenue growth over the comparable 2016 third quarter,” said CEO Alvaro Pombo. “Of note, our large enterprise customers are expanding their use and we are adding new ones including a U.S. cable company with an initial Q3 deployment of 2,000 subscribers. Our partner strategy complements our direct initiatives and we are seeing alignment with our strategic partners that gives us deeper access into key accounts. More data collection, through flexible workflows, is a clear trend in field automation including IoT. Field organizations and IT must deploy tools like ours to satisfy these growing needs.

Ajamian notes that ProntoForms’ revenue fell below his and the consensus revenue estimate of $3.5-million. The analyst says the third quarter was impacted by the hiring of new salespeople, who just began to hit their stride in the quarter. He says he expects their impact to be fully felt in Q4 and beyond.

“We understand that while there was a jump in onboarding of new clients in September/October, the monthly recurring revenue from them will not show up until Q4/FY17,” Ajamian says. “With the increase in productivity, management expects to not have to increase the size of the team to re-accelerate growth. Similarly, ProntoForms is getting good leads through its many partnerships, where it can plug into existing user bases. However, we expect the fruits of these initiatives will begin to show up in 2018 revenue. Given these moving parts, we expect recurring revenue growth to double to 18% in 2018, with the direct channel representing 73% of recurring revenue. With the operator channel acting as less of a drag, we are modelling recurring revenue growth the accelerate further in 2019, to 37%.”

In a research update to clients today, Ajamian maintained his “Buy” rating, but lowered his one-year price target on ProntoForms from $0.70 to $0.60, implying a return of 67 per cent at the time of publication.

Ajamian thinks ProntoForms will generate EBITDA of negative $3.2-million on revenue of $12.7-million in fiscal 2017. He expects those numbers will improve to EBITDA of negative $2.8-million on a topline of $15.3-million the following year.

Ajamian notes that ProntoForms currently trades at an EV/Forward Sales multiple of 2.5x. The analyst expects the shares will rise to a multiple of 3.5x in the coming year, supported by revenue growth and a slimmer EBITDA loss.