BSM Technologies is a buy, Laurentian Bank Securities says

BSM Technologies (TSX:GPS) produced a revenue beat over its fiscal third quarter, enough for analyst Nick Agostino of Laurentian Bank Securities to adjust his estimates but not enough to produce a target price change.

Agostino reiterated his “Buy” recommendation and $1.75 target in a client update on Thursday.

Earlier this week, fleet tracking and asset management SaaS company BSM Technologies announced its fiscal Q3/18 results, which featured an Adjusted EBITDA of $1.6 million, a 27 per cent year-over-year decrease, on total revenue of $15.8 million, off five per cent from Q3/17.

“We remain focused on increasing sales in our key sales verticals and are encouraged by our efforts in developing and identifying customer opportunities,” said Aly Rahemtulla, BSM’s President and CEO. “During the third quarter, progress continued towards consolidating our various software platforms, an important first step in helping us achieve our goal of developing an industry leading IOT software company that is differentiated by its business analytics and asset optimization capabilities. We believe that evolving our product focus to analyzing and optimizing the data we collect for clients will provide enhanced value to our clients and help differentiate BSM in an increasingly competitive market.”

Agostino says that the revenue beat ($15.2 million consensus, $15.1 million from Agostino) was driven by hardware revenue that came in above last quarter’s shortfall along with higher services revenue. The company experienced an elevated customer churn rate over the quarter, but Agostino says that it should return to the company’s target rate by the end of fiscal 2018.

“GPS looks to strategically transition the business to a hardware-agnostic model with an increased emphasis on recurring sales as the company targets data-driven solutions offering value-add over traditional telematics (possibly by early F2019). We take a positive initial view on this outlook and modestly adjust our estimates accordingly,” says Agostino.

The analyst made minor adjustments to his F2018 and F2019 revenue estimates while lowering his F2018 Adj. EBITDA from $6.2 million to $5.8 million and raising his F2019 Adj. EBITDA from $10.8 million to $11.2 million.

Agostino’s $1.75 target price represents a 34.6 per cent projected return at the time of publication.