Mogo Finance Technology has 167 per cent upside: Mackie Research

Canadian fintech company Mogo Finance Technology (TSX, NASDAQ:MOGO) is making solid progress on its platform strategy, says Mackie Research analyst Nikhil Thadani, who thinks the company could be ready for a partnership with an established financial institution.

In an update to clients on Thursday, the analyst reiterated his “Speculative Buy” recommendation and 12-month target price of $12.00.

Yesterday, Vancouver-based Mogo announced its second quarter ended June 30, 2018, financials, which featured total revenue of $15.4 million, up 34 per cent from Q2/2017 and beating the Street’s estimate of $14.2 million. The company posted a net loss for the quarter of $5.2 million, compared to a $4.3 million loss in the same quarter last year.

“This was a milestone quarter for the company that clearly demonstrates the power of our platform and our ability to drive strong financial results,” said David Feller, Mogo founder and CEO, in a press release. “We now offer six financial products that tie together in one digital, mobile-first experience to help consumers get financially healthy, and we continue to introduce new features and functionality to enhance the value proposition of the Mogo platform to members.”

In the earnings call, management suggested that potential new products could include a high interest savings acount in partnership with a bank along with a robo-advisor product, with the timeline to launch said to be about 12 months. Thadani says that Mogo’s reduced short term loan book exposure could make it an attractive partner or target for a larger institution.

“We are very encouraged by potential partnership comments on the Q2 call and now expect an even more rapid fall off in in short term loan driven revenue in Q3 (to zero in Q4),” says Thadani. “We believe a potential partnership with an established financial institution could be a meaningfully positive catalyst for the stock, owing to the potential to massively accelerate user growth and monetization.”

“While the Q2 revenue beat was largely driven by loan fees relative to our estimate, Mogo has demonstrated accelerating core revenue (defined as total revenue less short term loan fees) growth trends over the past five quarters, suggesting the platform is becoming more effective at generating revenue from multiple new revenue streams,” says the analyst. “While Gross Margin was ~64 per cent versus our 66 per cent estimate and consensus of ~65 per cent, contribution margin and EBITDA were both ahead of our estimates. Mogo ended Q2 with cash & cash equivalents of ~$31 million, in-line with our estimate.”

Thadani revised estimates put Mogo generating EBITDA for 2018 of $1.7 million (was $0.3 million) on revenue of $58.5 million (was $55.4 million) and EBITDA for 2019 of $11.2 million (was $9.9 million) on a topline of $73.3 million (was $71.9 million).

The analyst’s valuation at ~5x EV/2019 Net Core Sales supports his $12.00 target price, which represents a 167 per cent projected return at the time of publication.

Disclosure: Mogo is an annual sponsor of Cantech Letter