Sangoma Technologies is still a buy, says Beacon Securities

Over the past two months, share of Sangoma Technologies Corporation (Sangoma Technologies Stock Quote, Chart, News: TSXV:STC) have nearly doubled, but even so, the stock is still a bargain, says analyst Gabriel Leung of Beacon Securities, who maintains a “Buy” rating and 12-month target price of $2.00.

On Tuesday, Markham, Ontario-based Sangoma Technologies released its better-than-expected Q2 FY18 results, coming in with revenue of $11.7 million and EBITDA of $1.3 million, both of which beat Beacon Securities’ forecasts of $11.1 million and $707k, respectively.

The VOIP hardware and software maker acquired Buffalo, New York-based VoIP Supply this past year, which helped with the company’s results, says Leung.

“Overall, we view the fiscal Q2 results as another positive quarter as highlighted by the continued strength in y/y organic growth,” says the analyst in a report to clients on Thursday. “We also believe management continues to do a good job making smart acquisitions as evidenced by the VoIP Supply and CCD transactions,” he says.

“This year’s results included contributions from the acquisition of VoIP Supply. Assuming ~$3.75M in contributions (based on VoIP’s expected annual contribution of ~$15M), then we estimate that y/y organic revenue growth was ~20%, which we view as being very positive,” says the analyst.

STC’s Q2 F2018 of $11.7 million in sales turned out to be 79 per cent higher than the same quarter a year previous and represented the 12th quarter in a row that Sangoma posted higher revenue than the previous year.

As a result, even with the jump in price in 2017 (STC sat at $0.38 in early February last year), Leung says there’s more upside left for Sangoma.

“Despite a ~80% YTD increase in the stock price, we believe the stock remains a compelling value play with good growth levers at its current price of ~1.25 or 6.4x FY19e EV/EBITDA,” says the analyst, whose $2.00 target price represents a potential return of 60 per cent at time of publication