AcuityAds has a 43 per cent upside, Haywood Securities says

With a new acquisition and a term loan now under its belt, shares of AcuityAds (AcuityAds Stock Quote, Chart, News: TSXV:AT) should keep rebounding from a low reached last month, says analyst Pardeep Sangha of Haywood Securities, who on Monday reiterated his “Buy” recommendation and one-year target price of $1.50.

Last week, digital advertising tech company AcuityAds announced the closing of a previously announced purchase of video ad distributor to the Spanish-speaking market, ADman, for approximately €1.8 million in cash, €0.5 million in Acuity shares (subject to working capital adjustments) and future earn-outs with a maximum payout of €12.0 million.

CEO Tal Hayek says the ADman acquisition expands the company’s global footprint while providing incremental revenue growth prospects in the US.

“We are thrilled to be adding ADman Media and its team to the AcuityAds family,” says Hayek in a statement. “Adman Media’s supply side offerings are very complementary to our demand side offerings and together provide publishers and advertisers a more holistic and powerful suite of solutions to enable more effective execution of their digital advertising initiatives.”

Sangha says that the acquisition is complementary to Acuity and will add $10 million in annual revenue. As well, Sangha says the $7.3 million subordinated two-year term loan will be used to complete the ADman acquisition and invest in future growth initiatives.

“Acuity’s share price has rebounded 78 per cent since its low of $0.59 on May 10, 2018, driven by the closing of the Adman acquisition, improving debt terms and strong outlook for Q2CY18,” says the analyst in an update to clients.

“Management expects the Company’s revenue growth to rebound in Q2CY18 and to achieve breakeven EBITDA in the quarter. Management is also expecting to see continued improvement from Q2 to Q3 and the Company’s gross margin to improve to the mid-50 per cent range by Q3, largely driven by the Company’s new artificial intelligence system,” he says.

Sangha says that Acuity currently trades at 1.1x EV/Revenue of his CY18 estimates, which is lower than its peer group average at 4.3x.

The analyst sees upcoming catalysts in: sales rebounding in Q2CY18, announcement of another acquisition later this year, improving profitability in CY19 and better than expected synergies from its M&A.

Sangha’s $1.50 target represents a 42.9 per cent return at the time of publication.