VersaPay keeps buy rating at PI Financial

Following a large customer win Tuesday, PI Securities analyst David Kwan is maintaining his bullish stance on VersaPay (TSX:VPY).

This morning, VersaPay announced that an unnamed “major distributor” had selected VersaPay Corp.’s ARC as its AR and collections management solution for its U.S. and Canadian operations.

“We are delighted to add another large distributor to our rapidly growing client list and are extremely pleased at the strong alignment between what distributors need and what ARC does so well,” CEO Craig O’Neill said. “ARC’s proven ability to convert at least 75 per cent of our clients’ customers from paper to an on-line experience, automating manual work and providing flexible electronic payment options, offers a very compelling return on investment to distributors with tens or hundreds of thousands of customers.”

Kwan says this is a key win with a large distributor.

“Just over a year since signing its largest customer, Livingston International (as well as announcing its key partnership with the Royal Bank of Canada), VPY announced today that it has won what we believe is its second largest customer,” the analyst notes. “The unnamed major distributor generates over 200K invoices per month in three different languages. Putting this into context, this customer’s invoice volume we believe is ~20-40x larger than VPY’s average customer and in the ballpark of its largest customer, Livingston, who generates +300K invoices per month.

Kwan looked to measure the potential financial impact of the order.

“In terms of the financial impact, we believe Livingston is generating ~$0.5M in annual recurring revenue (ARR) so based on monthly invoice volumes, we believe this new customer could generate ARR in the ~$0.3M-$0.4M range,” he says. “There could be (material) upside, depending on related Payport transaction volumes (the recently announced First Data partnership could help) while there could be (material) professional services revenue in the near-term, as VPY helps to get this client and their customers live on ARC.”

In a research update to clients today, Kwan maintained his “Buy” rating and one-year price target of $3.50 on VersaPay, implying a return of 37.3 per cent at the time of publication.

Kwan thinks VPY will generate Adjusted EBITDA of negative $9.0-million on revenue of $5.5-million in fiscal 2018. He expects those numbers will improve to EBITDA of negative $3.8-million on a topline of $12.6-million the following year.