Mogo Finance Technology could rise with potential U.S. listing, Mackie says

Mogo Finance Technology’s (Mogo Finance Technology Stock Quote, Chart, News: TSX:MOGO) fourth quarter results arrived as advertised, says Nikhil Thadani, who maintains his “Speculative Buy” rating and 12-month target price of $12.00 on the stock.

On Tuesday, Vancouver-based fintech company Mogo Finance released its financial and operating results for Q4 and full year ended December 31, 2017. Mogo saw its subscription and fee-based revenue increase by 96 per cent over Q4 to $4.1 million. Subscription and fee-based revenue now represents 31 per cent of the company’s total revenue, which was $13.3 million in Q4, up 13 per cent from Q4/16.

“We continued to execute on our mission of empowering consumers with simple solutions to improve their financial health with the introduction of three new products in 2017, including MogoProtect in the fourth quarter, and we are advancing our MogoCrypto product toward launch this quarter, which will represent our sixth product,” said Mogo founder and CEO David Feller, in a press release.

“We are also encouraged by the early results of our efforts to cross-sell and monetize new products through our fast-growing member base, including through our premium account features.  Our model is simple, the more we help our members improve their financial health, the more we grow our revenue,” Feller said.

In an update to clients on Wednesday, Thadani says that Mogo’s Q4 revenue came in-line with estimates, while its revenue mix as well as gross, contribution and EBITDA margins were all better than expected.

The analyst says that MOGO’s current valuation gives room for an upside in 2018. “Mogo trades at ~2x net sales versus Fintech names at ~5x on a 2019 basis. We model >30 per cent revenue growth in 2019, with upside potential from lucrative subscription and fee based revenue, which could suggest that the stock may be even cheaper than may appear,” says the analyst. “Recall, we exclude funding debt from net debt and account for loan book interest revenue net of funding interest expenses. Our $12/sh price target reflects ~4x net 2019 revenue, a discount to the peer group.”

Thadani says new products from Mogo such as MogoCrypto could increase its subscription and fee revenue growth in 2018, which the analyst estimates at ~40 per cent contribution for the year.

Thadani say he sees one important potential catalyst on the horizon.

“Mogo’s potential exposure to US investors could provide a catalyst to narrow the stock’s valuation gap, He says, adding: – Mogo recently filed its 40F, which could suggest a potential NASDAQ listing may be in the offing.

• US investors have rewarded stocks such as Square (SQ-NYSE), which is up ~43% year-to-date, even though bitcoin is down ~20% over the same period, in part because the company’s crypto related offering has gained traction and mind share.

• If Mogo’s crypto product can achieve similar traction in Canada (likely be amplified by Mogo’s Postmedia partnership) and if US investors have access to Mogo, the stock’s valuation could benefit.”

The analyst’s revised estimates have Mogo generating revenue and EBITDA of $64.8 and $1.8, respectively, in 2018, and $86.6 and $8.9, respectively, in 2019. He maintains his “Speculative Buy” rating on the stock with a 12-month target price of $12.00, representing a projected return of 147 per cent as of publication date.