Solium Capital is worth $15.50 a share, Haywood says

Following the company’s second quarter results, Haywood Securities analyst Pardeep Sangha has raised his price target on Solium Capital (TSX:SUM).

On Wednesday, Solium reported its Q2, 2018 results. The company lost (US) $536,000 on revenue of $26.9-million, a topline that was up 26 per cent over the same period last year.

Sangha notes that SUM continues to migrate Morgan Stanley and UBS customers on a monthly basis, and says he expects that EBITDA margins will continue to improve because revenue is set to increase while operating expenses should remain flat.

In a research update to clients today, Sangha maintained his “Buy” rating but raised his one-year price target on Solium from $14.00 to $15.50. His new target implied a return of 29.6 per cent at the time the report was issued. The analyst explained the reasoning behind the raise.

“We believe Solium’s valuation multiples will increase as the Company gets closer to completing its two large migrations and EBITDA margins increase,” Sangha said. “Solium is currently trading below its peer group on an EV/Revenue multiple of 4.2x our CY18 estimates vs. the peer group at 5.7x EV/Revenue of consensus CY18. Our target price is based on a 4.6× EV/Revenue multiple and 20.0× EV/EBITDA of our CY19 estimates (previously 4.2× EV/Revenue and 18.0× EV/EBITDA). We increased our target valuation multiples based on the successful migrations and improving EBITDA margins in CY19.”

Sangha expects SUM will generate Adjusted EBITDA of (All figures USD) $10.2-million on revenue of $107-million in 2018. He thinks those numbers will improve to EBITDA of $30.9-million on a topline of $133.6-million the following year.