Want to make some money in the third quarter of 2018? Echelon Wealth Partners analyst Ralph Garcea says you should be buying Pivot Technology Solutions (TSX:PTG).
In a research update to clients Monday, Garcea maintained his “Buy” rating and one-year price target of $5.50 on PTG, implying a return of 199 per cent at the time of publication.
The analyst says Pivot is one of his two small cap top picks for the third quarter and explained why.
“With $1.59B in revenue and $30M in EBITDA (~1.9% margins) expected in 2018, the Company is well-positioned to capitalize on growth in IT spending, with ~70% of revenue from Fortune 100 enterprises,” Garcea notes. “2017 was a year of investment for Pivot – investment in a commercial transformation to a more Managed Services focused enterprise – which is now beginning to bear fruit. EBITDA margins have been improving y/y since the focused services rollout in Q217 – Q317 margin of 1.9% versus 1.7% y/y; Q417 margin of 2.8% versus 2.1% y/y; Q118 margin of 0.4% versus (0.5%) y/y.”
Garcea says the company’s momentum should continue for the entire second half of 2018.
“We believe EBITDA margins will continue to improve on a core y/y basis once adjusting for Smart-Edge investments (~$1M/qtr now) as Managed Services comprise a larger portion of overall revenue, which should drive valuation upside,” the analyst added. “We also believe material hidden value lies in its patent-pending Smart-Edge, Multi-Access Edge Computing (MEC) software, which is now operational and through several enterprise pilots. We believe this will take the eventual form of a focused spin-out company due to the sheer fact that this is a SaaS solution within an IT Services company, and deserves a much higher valuation than a VAR business. Pivot continues to advance this next-gen software solution with Tier 1 partners. We look for a robust H218.”
Garea thinks Pivot will generate EBITDA of $30-million on revenue of $1.59-billion in fiscal 2018. He expects those numbers will improve to EBITDA of $39.0-million on a topline of $1.64-billion the following year.