Buy AcuityAds for a double, Haywood says

This morning, AcuityAds announced it had completed a strategic transaction with an unnamed American artificial intelligence adtech company.

“AcuityAds has already built the technology and infrastructure to allow for significant sales growth and increasing operating leverage in our business,” CEO Tal Hayek said. “This strategic transaction should allow us to enhance our sales trajectory by adding a sizable selling team with extensive industry and AI experience, while minimizing the necessity for incremental technology and infrastructure. “Moreover, with the addition of this team alongside our current momentum, we believe we are well positioned to achieve record revenue in the fourth quarter of this year.”

Sangha says this is a very good move for AcuityAds, and adds to management’s already bullish outlook.

“The transaction will help accelerate Acuity’s sales in the U.S. and give the Company an opportunity to cross-sell its solutions into a new client base,” the analyst says. “Management is expecting this transaction will result in Acuity achieving record revenue in Q4. Acuity previously delivered record revenue of $18.5M in Q4CY16. The transaction is supportive of continued momentum following strong Q2CY18 results. Last quarter, Management indicated that it expects to achieve continued growth and improving profitability in Q3CY18 and the ADman acquisition will also have a full quarter of contribution in Q3.”

In a research update to clients today, Sangha maintained his “Buy” rating, but raised his one-year price target on the stock from $1.75 to $2.00, implying a return of 135 per cent at the time of publication.

Sangha thinks AT will generate Adjusted EBITDA of $2.5-million on revenue of $54.2-million in fiscal 2018. He expects those numbers will improve to EBITDA of $9.0-million on a topline of $70.0-million the following year.

“We believe Acuity is undervalued,” the analyst concludes. “Acuity is currently trading at 1.0x EV/Revenue of our CY18 estimates, which is lower than its peer group average trading at 4.3x EV/Revenue of consensus CY18 estimates. Our target price represents 1.5x EV/Revenue multiple and 11.6x EV/EBITDA multiple of our CY19 forecast.”