Cortex Business Solutions is still undervalued, Haywood says

Ahead of the company’s Q1, 2018 results Haywood Securities analyst Pardeep Sangha thinks Cortex Business Solutions (Cortex Business Solutions Stock Quote, Chart, News: TSXV:CBX) still offers plenty of upside for investors.

On Wednesday, December 6, prior to the market open, Cortex will report its Q1, 2018 results. Sangha expects the company will generate Adjusted EBITDA of $100,000 on revenue of $3.0-million, figures that match the street consensus exactly.

The analyst says he forecast for revenue growth of 23 per cent could have been a bit better, had Mother Nature not intervened.

“We believe the flooding in the Houston area will have a slight negative impact in the quarter, but revenue will pick up in Q2FY18,” the analyst explains. “We expect increased activity in FY18 from the infrastructure re-build following the severe hurricanes.”

Sangha says there are several things he will be looking on Cortex’s conference call following the results.

“On the conference call, we will be listening for: Growth in metrics, particularly recurring Access Fees which we are forecasting at $1.7M, compared to $1.4M in Q1FY17; An update on management’s goal of achieving a $20M revenue run-rate by 2020; When do we start to see meaningful EBITDA expansion as Cortex has now achieved 4 quarters of positive Adj. EBITDA; Sales growth in the US market and in additional vertical markets beyond the oil/gas industry,” the analyst says.

Sangha notes that Cortex currently tradesat 2.1x EV/Revenue multiple of his 2018 estimates, much lower than its peer group, which trades at 5.3x EV/Revenue of consensus 2018 estimates. His Our target price is based on a 3.7x EV/Revenue multiple of his 2018 forecast.

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