Cortex Business Solutions has a 73 per cent upside, PI Financial says

Cortex Business Solutions (Cortex Business Solutions Stock Quote, Chart, News: TSXV:CBX) continues to have great value, but some patience is needed, says analyst David Kwan of PI Financial, who maintains his “Buy” rating with a lowered target price of $6.60.

On Tuesday, electronic invoicing company Cortex Business Solutions reported its financials for the three and six months ended January 31, 2018, highlighted by a Q2 adjusted EBITDA rising from $0.2 million to $0.6 million and a Q2 overall revenue increase of 11 per cent, going from $2.7 million to $3.0 million.

CBX took on four new buyers over the quarter but also lost four to M&A and competition, putting the company at 98 buyers, which still represents a slight increase from a year ago (97 buyers).

“In what has now been another year of uncertainty across the Canadian energy sector, we have more often than not been the benefactor of asset changes and company transactions across Canada,” said Joel Leetzow, President and CEO of Cortex Business Solutions, in a press release, “but this quarter we recently lost two Cortex clients in Calgary due to the purchase and consolidation of certain Canadian assets. That said, our programs for diversifying our revenue are working. Because of this, Cortex is positioned to sustain and build on these record results.”

In an earnings update to clients on Wednesday, Kwan rates the impact of the Q2 numbers as slightly negative.

“Despite the slowdown in revenue growth this quarter and the disappointing performance in adding new Buyers, CBX remains bullish on the future and is maintaining their target of hitting a $20 million revenue run rate by FY20, which includes the impact of potential acquisitions, which Management continues to evaluate,” says the analyst.

“We believe the shares could remain range bound until we see revenue growth start to re-accelerate (we expect in early FY19), as CBX is facing some tough year over year comparisons in the coming quarters,” says the analyst. “That said, we expect ROE to continue to accelerate and hit the 20 per cent range next year (FY19). At under 2x EV/Sales and 7.5 EV/EBITDA (CY19), at significant (>50 per cent) discounts to the peer group, we believe the shares are very attractively valued.”

Kwan revised forecast for Cortex includes revenue of $12.4 million in FY18 (down from $13.4 million) and $14.2 in FY19 (down from $16.2 million), along with adjusted EBITDA of $1.7 million (was $2.0 million) in FY18 and $2.8 million (was $3.7 million) in FY19.

The analyst reiterates his “Buy” recommendation with a lowered target of $6.60 (previously $7.00), representing a 73.7 per cent return at the time of publication. The analyst maintains his Speculative risk rating.

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