AcuityAds has 41 per cent upside, Echelon Wealth says

AcuityAds Holdings (TSXV:AT) posted strong numbers in its second quarter results, according to analyst Rob Goff of Echelon Wealth Partners, who especially likes the company’s new strategic focus on display over Q2.

On Thursday, in an update to clients, Goff reiterated his “Speculative Buy” rating for AT with a raised price target of $1.40 (was $1.20).

Q2 of 2018 was a busy one for the digital advertising company AcuityAds, which closed its acquisition of video supply side platform for the Spanish-speaking markets, ADman Media, along with closing a $4.6-million bought deal and securing a new $7.3-million term loan.

“We are very pleased with our second quarter results as we exceeded our expectations and the guidance that we provided earlier this year in terms of both revenue and EBITDA,” said Tal Hayek, CEO of AcuityAds. “We grew our gross revenue by 50 per cent and net revenue by 55 per cent, saw an increase in Self-Serve revenue of 42 per cent, and improved our Adjusted EBITDA by $2.4 million, all compared sequentially to the previous quarter. Furthermore, with the launch of our next-generation AI programmatic marketing platform, our gross margins continue to be positively impacted.”

Goff says the Visible Measures migration over Q1/18 is now delivering better performance and margins with lower costs for Acuity, while the company’s focus on the artificial intelligence component will drive higher revenues and margins going forward.

“Q218 revenues/EBITDA at $11.96 million/$0.42 million were significantly higher than our forecasts of $11.2 million/-$0.44 million, and the consensus at $11.3 million/-$0.20 million,” says Goff. “Guidance for ADman contribution to the business was confirmed at 15-20 per cent increases in revenue, or $10 million per year. Management is expecting to see continued growth to come from the Managed Services segment. Operating expenses were up $0.3 million ($7.8 million this quarter, compared to $7.5 million for Q118), attributable to the inclusion of ADman two-week period.”

The analyst has upped his 2018 revenue and EBITDA forecasts for Acuity from $67.6 million and negative $1.0 million, respectively, to $53.8 million and $1.7 million, respectively. His $1.40 target price represents a projected 12-month return of 41 per cent at the time of publication.