Solium Capital has modest upside, Haywood says

Ahead of next week’s earnings Solium Capital (TSX:SUM) still has a little upside, Haywood Securities analyst Pardeep Sangha says.

On Wednesday, March 21 after market, Solium will release its Q4 and fiscal 2017 results. Sangha says he is expecting a year-over-year decline in EBITDA margin in the fourth quarter due to cost increases related to implementing the Morgan Stanley and UBS contracts. The analyst has modeled EBITDA of $1.3-million on revenue of revenue of $20.8-million, which would be an increase of 10.4% from the $18.9-million topline of last year’s Q4. This compares to consensus estimates of $1.2-million on revenue of $21.5-million.

In a research update to clients today, Sangha maintained his “Buy” rating and one-year price target of $12.00 on Solium, implying a return of 8.3 per cent at the time of publication.

The analyst today provided some color on his target and rating.

“Solium is currently trading at a 3.9x EV/Revenue of our CY18 estimates, which is below its peer group trading at a 5.0x EV/Revenue multiple of consensus CY18 estimates,” Sangha says. “Solium’s current EV/EBITDA multiple of 24.8x our CY18 estimates, is trading above its peer group average of 16.6x consensus CY18 estimates because the Company’s EBITDA margins are currently compressed due to the Morgan Stanley and UBS roll-outs.”

Sangha’s target is based on Our target price is based on a 4.0x EV/Revenue and 25.5x EV/EBITDA multiple of his CY18 estimates.

The Haywood analyst thinks Solium will generate EBITDA of (All figures USD) $10.3-million on revenue of $84.5-million in fiscal 2017. He expects those numbers will improve to EBITDA of $15.9-million on a topline of $101.0-million the following year.