Trakopolis IoT is undervalued, Echelon’s Garcea says

Following the company’s fourth quarter results, Echelon Wealth Partners analyst Ralph Garcea is feeling bullish about Trakopolis IoT Corp. (Trakopolis Stock Quote, Chart, News: TSXV:TRAK).

On Friday, TRAK reported its Q4 and fiscal 2017 results. In the fourth quarter, the company posted Adjusted EBITDA of negative $800,000 on revenue of $1.8-million. Garcea had modeled an EBITDA loss of $900,000 on revenue of $1.9-million. The company’s gross margin number of 49.9 per cent fell below the 51% figure the analyst expected.

“Two thousand seventeen produced record total revenue and saw a continued increase in monthly recurring revenue,” CEO Brent Moore said. “We continue to be successful in the enterprise segment and that contributed significantly to our topline and subscription revenue growth. Our success in the large enterprise customer segment demonstrates Trakopolis is capable of achieving material sales growth over the near term. Looking ahead, we’re also very pleased with our investment in our expanding network of channel partnerships and the establishment of new sales channels. Partnering with major corporations demonstrates that Trakopolis has built an enterprise-grade platform, and this is consistent with our long-held strategy of collaboration. Our ability to work with market leaders in different segments, combined with our customizable, hardware agnostic platform, has allowed us to differentiate our services offering in the global safety and productivity market. We look forward to working with clients to deliver, comprehensive, end-to-end industrial Internet of things solutions.”

Garcea summarized the company’s business opportunities, noting the impact of a milestone contract.

“TRAK recently announced a deal with a large US-based oil and gas company for the sale of 1,500 units of Honeywell’s (HON-US, NR) TRAK-powered ConneXt Lone Worker gas detection solution. TRAK will receive payment for the sale of each unit and a monthly recurring data fee for the connectivity of the devices over a contracted four-year period. The minimum TCV is expected to be US$4.79M, with an estimated US$2.82M (inclusive of hardware revenue) expected in 2017,” the analyst notes. “TRAK’s secondary (and new) business is electronic log books (ELOG). ELOG provides TRAK with a platform for fleet operators to be ELD compliant. The ELD mandate specifies that commercial vehicle drivers must transition to ELOG based records over a two-year span. The US has passed a mandate that is required to come into effect December 2017, with Canada anticipated to pass its ELD mandate with a December 2019 cut-off. The potential market size is ~3.1M trucks and ~3.4M drivers. The U.S. FMCSA estimates that the ELD equipment market is worth ~US$1B; more meaningful is that it requires customers to step back and evaluate their current technology offering. We estimate that this is a $500M+/yr subscription revenue market.”

In a research update to clients today, Garcea maintained his “Buy” rating and one-year price target of $1.50 on Trakopolis, implying a return of 150 per cent at the time of publication.

Garcea thinks TRAK will generate EBITDA of negative $1.3-million on revenue of $11.3-million in fiscal 2018. He expects those numbers will improve to EBITDA of positive $1.4-million on a topline of $14.1-million the following year.

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