Cortex Business Solutions has 83 per cent upside, PI says

E-invoicing company Cortex Business Solutions (Cortex Business Solutions stock Quote, Chart TSXV:CBX) is facing stiffer competition due to ongoing consolidation in the energy software space, says analyst David Kwan of PI Financial. Nevertheless, in a client update on Wednesday, Kwan reiterated his “Buy” rating and $6.60 target price for CBX.

Yesterday, it was announced that two private equity-backed companies in the oil-and-gas software sector would be combining, as Drilling Info Holdings acquired Accel-KKR portfolio company Oildex. The news comes after last month’s move by private equity firm Thoma Bravo to acquire Quorum Software.

Kwan says that Cortex is looking to get in on the M&A and deploy some of its increasing cash position, contending that the Oildex purchase is a neutral or slight positive for Cortex over the near- to medium-term, as the joined companies deal with integration, but could over the long term present a challenge to Cortex in terms of customer growth.

Overall, Kwan calls the acquisition news neutral in its impact on Cortex, saying that CBX is very attractively valued at just 1.6x CY2019 Sales compared to its peer group at 6.5x.

“We believe the shares are poised to outperform, with organic growth set to reaccelerate in the first half of fiscal 2019 back toward the +20 per cent year-over-year level, with the growth profile potentially further bolstered by M&A activity,” says Kwan.

“As well, the trailing twelve-month return on investment continues to surge (17 per cent last quarter) and we believe it should stay in the 20 per cent range, despite increased investments to drive future growth,” the analyst says.

Kwan thinks Cortex will generate revenue and Adj. EBITDA of $12.4 million and $2.0 million, respectively, in fiscal 2018 and revenue and Adj. EBITDA of $14.2 million and $2.5 million, respectively, in fiscal 2019.

His $6.60 target represents a projected 12-month return of 83 per cent at the time of publication.