VersaPay has a 14.6 per cent upside, says Haywood Securities

Ahead of its quarterly earnings report, analyst Pardeep S. Sangha of Haywood Securities says that VersaPay (VersaPay Stock Quote, Chart, News: TSXV:VPY) is ramping up for the next stage in the company’s growth. In a note to clients on Thursday, Sangha reiterated his “Buy” rating and $2.75 target price with an overall risk profile of Very High.

Cloud-based software company VersaPay will be reporting its Q1FY18 financials after market close on Tuesday, May 29, with consensus expectations of $1.3 million in revenue and an Adj. EBITDA loss of $2.1 million on a gross margin of 71.0 per cent.

Sangha says he’s predicting 183 per cent year-over-year revenue growth in the quarter and explains that while the fintech company’s Adj. EBITDA will likely be worse than last year’s Q1, that’ll be due to the company following through on expansion plans and the associated higher operating expenses.

Sangha says the invoicing and accounts receivable company’s key metrics are trending upwards. “The Company is successfully signing new suppliers, bringing those suppliers live, and increasing end-customer adoption,” the analyst says. “VersaPay had 97,059 end customers on the ARC platform at the end of December 31, 2017, which increased to 108,000 in mid-April, and now exceeds 113,000 according to most recent figures.”

Sangha notes that on the earnings call, he’ll be listening for indications on the following: (1) progress of the RBC pipeline which was at 100 opportunities last month; (2) pipeline details on new partnerships, especially a U.S. bank; (3) update on U.S. expansion given new sales hires; (4) its Livingston customer going live; and (5) any changes to target metrics, which management set at 250,000 customers by the end of 2018.

The analyst says that VersaPay is currently trading at 9.9x EV/Revenue of his CY18 estimates compared to its peer group average of 5.3x EV/Revenue multiple of CY18 estimates.

Sangha’s $2.75 target reflects a projected return of 14.6 per cent at the time of publication.

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