Better than expected results over Q1 for Solium Capital (TSX:SUM) are cause for an estimates revision and target upgrade, says Robert Young of Canaccord Genuity. On Thursday, the analyst reiterated his “Buy” recommendation with a new C$12.75 price target.
Makers of Software as a Service for equity admin and financial reporting, Solium Capital announced its first quarter ended March 31, 2018, on Wednesday, posting a 23 per cent uptick in revenue along with a 27 per cent rise in license and subscription fees.
The company reported $26.1 million in revenue (all figures in US dollars unless noted otherwise), compared to the consensus $24.4 million and Young’s $25.4 million, and a $3.5 million EBITDA (13 per cent margin) which beat the Street’s $2.7 million and Young’s $3.3 million.
“Solium reported strong Q1 revenue and EBITDA ahead of expectations alongside consistent and upbeat commentary on its deployments with Morgan Stanley and UBS. Both are on track and attracting positive feedback while migrations have transitioned into a steady monthly pace. Management also highlighted a strong pipeline in the US, Canada and International markets and strong bookings in Q1,” says the analyst in a research update.
“We believe the risk profile of an investment in Solium shares has declined meaningfully in 2018 given strong execution on US white-label deployments, improved stability and growth in EMEA and Australia and with a significant hiring ramp plateauing,” he says.
In Q4 2016 and Q2 2017, respectively, Solium entered into white-label license agreements with Morgan Stanley and UBS Financial Services, both of which have become key priorities for the company. According to management, Solium is still committing additional resources to both projects, with customer migration in both cases having commenced in December of 2017. Management says that all clients will be on board with the company’s Shareworks platform by the end of 2019.
Young predicts that Solium could complete its migrations ahead of schedule and that strong execution on that front could pull in more white-labels to the company’s platform.
“Solium continues to have a clean balance sheet with $87M cash after the acquisition of Advanced-HR and following year-end bonuses. Management indicated it is actively looking for M&A opportunities to put the cash to work,” says Young.
The analyst says that Solium currently trades at 3.0x C2018E EV/Sales, which is at a discount to its small and midcap peers at 6.2x.
Young’s C$12.75 target (up from C$12.50) represents a 25.9 per cent projected return on investment as of publication date.