Following a quarter that fell below his expectations, Beacon Securities analyst Gabriel Leung has downgraded BSM Technologies (TSX:GPS) from “Buy” to “Speculative Buy”, though the analyst has maintained his bullish $2.00 target on the stock.
On Wednesday, BSM Technologies reported its fourth quarter and fiscal 2017 results. In the fourth quarter, the company posted Adjusted EBITDA of $1.2-million on revenue of $15.7-million, a topline that was up five per cent over the same period last year.
“In fiscal 2017, we continued to invest in our business to enhance our sales and marketing, customer experience, and technology. We also made the key acquisition of the assets of Mobi Corp., which expanded our service offering, provided cross-selling opportunities and strengthened our management team,” said CEO Aly Rahemtulla. “In fiscal 2018, we intend to capitalize on the advances we’ve made in our software platform consolidation, in particular, as we leverage our investment in both the technology and human resources required to take full advantage of our analytics capabilities. We continue to focus on our customers and ensure they are provided with an exceptional customer experience, which drives organic growth and will assist us to achieve positive trends in revenue alongside robust margins. Our focus on vertical market opportunities will continue as we expand our product solutions to include more in-depth data visualization for both existing and new customers, which will provide a more robust end-to-end asset utilization experience for our customers.”
Leung says he was expecting EBITDA of $1.87-million on revenue of $16.8-million. He focused on the company’s potential for M&A.
“Overall, we view fiscal Q4 as another relatively uneventful quarter,” the analyst says. “From a bigger picture perspective, despite doing a good job scaling the business to its current subscriber base, we believe BSM has been impacted by management/customer churn, product integration delays, and a competitive market place. We also believe the relatively light balance sheet (albeit debt-free) potentially limits BSM’s ability to consummate a material acquisition. That said, despite these challenges we continue to be of the view that the company remains a valuable asset given its scale and vertical expertise. Furthermore, we believe management’s near-term strategic initiatives (i.e. platform consolidation / recent management streamlining) could make it more attractive to a potential acquirer.
In a research update to clients today, Leung lowered his rating on BSM from “Buy” to “Speculative Buy”, but maintained his one-year price target of $2.00 on BSM Technologies, implying a return of 54 per cent at the time of publication.
“We are adjusting our rating to Speculative Buy from Buy given our view that the main investment thesis revolves around M&A rather than BSM’s near-term operational performance,” the analyst explained.
Leung thinks BSM Technologies will generate EBITDA of $7.5-million on revenue of $65.7-million in fiscal 2018. He expects those numbers will improve to EBITDA of $9.8-million on a topline of $68.2-million the following year.