Sangoma Technologies is moving to the big leagues, Beacon Securities says

A new acquisition for Sangoma Technologies (Quote, Chart TSXV:STC) has Beacon Securities analyst Gabriel Leung raising his price target on the stock.

This morning, Sangoma announced it would acquire Digium, which the former described as the creator of Asterisk, the most widely used open source communication software in the world, along with Sangoma’s FreePBX.

“Sangoma and Digium have a long history of working together, while also competing in the marketplace, and have gotten to know each other very well over the years. Our relationship and mutual respect allows us both to know that the strategic fit between the two businesses really is excellent,” Sangoma CEO Bill Wignall said. “This transaction will add very meaningful sales, create market leadership in our segment, increase recurring revenue materially and allow us to nicely leverage our complementary businesses. During a time of industry consolidation, this transformative merger is another bold step for us in implementing our strategy to scale up and increase shareholder value, by augmenting our organic growth with complementary M&A opportunities. To the new staff that will be joining us, I’d like to welcome you to the growing Sangoma family. To our Digium customers and partners around the globe, I’d like to assure you that everyone at Sangoma remains committed to you, to the Digium products you rely upon, and to further contributing to your success. And of course, to the Asterisk community, I would like to reassure you that Sangoma recognizes the value of Asterisk and is committed to keeping it open source. We will continue to invest in its development and to seek input from the broad base of developers that has led to its outstanding success.”

Leung says this development moves Sangoma into the big leagues.

“In our opinion, the key benefit of this acquisition will be that of scale,” the analyst says. “On a consolidated basis, we believe the company and its 300+ employees and strong distribution network will be better positioned to address a larger global customer base, with a full product suite (albeit with some overlap).”

In a research update to clients today, Leung maintained his “Buy” rating, but raised his one-year price target on Sangoma from $2.15 to $2.25, implying a return of 80 per cent at the time of publication.

Leung thinks STC will generate EBITDA of $6.3-million on revenue of $57.3-million in fiscal 2018. He expects those numbers will improve to EBITDA of $9.7-million on a topline of $100.2-million the following year.