Spectra7 Microsystems has 141% upside, Canaccord Genuity says

A financing that shores up the balance sheet of Spectra7 Microsystems (Spectra7 Microsystems Stock Quote, Chart, News: TSX:SEV) has Canaccord Genuity analyst Taylor Arnold feeling good about the company’s prospects.

On Tuesday, Spectra7 announced it had closed a previously announced bought-deal financing worth $15.3-million, nothing that Global Blockchain Technologies Corp. invested approximately $2-million.

“We’re pleased at the supportive response from the investment community,” said Spectra7 Microsystems CEO Raouf Halim. “We’d like to thank current and new investors for their participation. We’d also like to thank GBT for their strategic investment, and we look forward to leveraging their expertise as we enter the blockchain vertical.”

Arnold broke down the financing.

“The net proceeds of the offering will be used towards the repayment its term loan, product development, and working capital purposes,” the analyst explains. “In connection with the term loan repayment, MidCap Financial has agreed to waive its 5% prepayment fee and reduce its exit fee to $0.5 million, in exchange for 2.2 million new common share warrants that replace the existing warrants and carry an exercise price of ~$0.31. In connection with the offering, Global Blockchain Technologies made a strategic investment of $2.0 million, and Spectra7 management views BLOC as a strategic partner moving forward. We view this financing as a positive for Spectra7: it lowers the cost of financing to 7.0% from LIBOR + 8.5% while providing the company with additional capital to support its near-term demand pipeline.”

In a research update to clients today, Arnold maintained his “Speculative Buy” rating and one-year price target of $0.75 on Spectra7, implying a return of 141.0 per cent at the time of publication.

Arnold thinks Spectra7 will generate Adjusted EBITDA of negative $6.3-million on revenue of $10.7-million in fiscal 2017. He expects those numbers will improve to EBITDA of negative $1.2-million on a topline of $20.2-million the following year.