Buy VersaPay on share price weakness, PI Financial says

Cloud-based accounts receivable company VersaPay Corp. (TSXV:VPY) should see a ramp up in revenue as we head into the new year, according to analyst David Kwan with PI Financial, who in a corporate update on Wednesday maintained his “Buy” rating while pulling back his target from $3.25 to $3.00.

Last month, VersaPay closed on a $9.3-million bought deal equity offering, money which will be used to further its sales and marketing and R&D, to expand its presence in the US and for general corporate and working capital purposes. Along with the bought deal, the company has announced JJ Haines & Company, the largest flooring distribution company in the US, became the third distribution client in the past few months to sign onto VersaPay’s accounts receivable platform, ARC.

"The distribution vertical continues to garner significant attention as there is a very unique and logical fit for ARC," stated Craig O'Neill, CEO of VersaPay, in a statement . "We are thrilled to welcome J.J. Haines to our growing list of distribution clients.”

Kwan says that the two events —which he rates as having a Neutral impact— were cause for modest revisions to his estimates for VPY, moving his fiscal 2018 revenue and Adjusted EBITDA forecasts from $5.1 million and negative $10.6 million, respectively, to $4.8 million and negative $10.7 million, respectively.

Kwan says the new bought deal, which included the sale of approximately 5.4 million shares, is cause for the lowering of his target price (VPY’s market cap is currently $60 million). Currently, the stock is down 32 per cent year-to-date, making for a good buying opportunity, Kwan says.

“In our view, the share price weakness has created a very attractive entry point, especially with the balance sheet now in a stronger position. We believe revenue growth will begin to re-accelerate heading into FY19, as some of VPY’s largest clients come on-line and begin to ramp (including at least one or two other Top 10 customers), their customers are on-boarded, and there is a greater contribution from key partners including RBC and First Data,” Kwan says.

For 2019, the analyst thinks VPY will generate negative $7.7 million in Adj. EBITDA on a top line of $12.2 million. His $3.00 target represents a projected 12-month return of 121 per cent at the time of publication.