ProntoForms is a takeover candidate, Beacon Securities says

Its most recent financial results have him feeling a little less bullish, but Beacon Securities analyst Gabriel Leung still thinks there is money to be made on ProntoForms (ProntoForms Stock Quote, Chart, News: TSXV:PFM).

This morning, ProntoForms reported its fourth quarter and fiscal 2017 results. In the fourth quarter, the company lost $1.21-million on revenue of $3.37-million, a topline that was up eleven per cent over the same period last year.

“We finished 2017 on a high note with 7-per-cent sequential growth in Q4 recurring revenue and the addition of Fortune 50 customer contracts totalling over $1-million in committed value,” said CEO Alvaro Pombo. “In 2017 we proved that our platform is built for the enterprise, with the scalability, security and cloud integrations that major global enterprises require. The changes we have made to our direct sales teams are allowing us to sign new enterprise customers and to achieve significant expansion from existing customers. In addition, our growing roster of channel partners is bringing us to opportunities where enterprise grade cloud-based mobile workflows are needed. Our Rapid Mobile Application Development (RMAD) solution has been deployed successfully for a range of business processes in enterprise, including safety automation; enterprise asset management; and field service management, either as a stand-alone solution or as a mobile extension of existing solutions. The no-code platform, increasingly recognized by leading industry analysts, allows easy adoption by non-technical line-of-business owners in enterprise, scales with IT requirements and co-exists very well with solutions provided by our expanding partner ecosystem.”

Leung notes this was a tough quarter for ProntoForms, and the analyst today lowered his one-year price target on the stock from $0.60 to $0.50, but maintained his “Buy” rating. The analyst says there are ways the company could deliver a return for investors.

“Overall, we believe ProntoForms is an interesting and cheap recurring revenue play at ~2x EV/Sales,” the analyst says. “That said, for PFM to benefit from a multiple expansion, we believe it needs to increase its revenue scale (either through an acquisition or faster organic revenue growth) and/or hit EBITDA breakeven operations (we expect EBITDA breakeven in the latter half of CY19). Alternatively, we believe the company could make an interesting takeover candidate with potential acquirers either strategic (e.g. a company that has a large mobile workforce) or financial.

Leung thinks ProntoForms will generate EBITDA of negative $3.0-million on revenue of $14.2-million in fiscal 2018. He expects those numbers will improve to EBITDA of negative $1.3-million on a topline of $16.1-million the following year.