Ahead of VersaPay’s (VersaPay Stock Quote, Chart: TSXV:VPY) third quarter earnings report due on November 28, analyst Pardeep S. Sangha of Haywood Securities says that the fintech company will need to show a sizeable ramp in customer growth in order to meet its guidance of 250,000 end customers by the close of 2018.
Sangha says accounts receivable SaaS provider VersaPay should generate revenue of $1.3 million for Q3 to go along with an EBITDA loss of $3.2 million, with the analyst forecasting that the company will become EBITDA-positive by 2020.
Sangha notes that so far, VersaPay has just over 137,000 end customers, which compares to 117,578 customers at June 30 of this year. The stock has lost 56 per cent of its value since the end of May, which Sangha says makes VPY a cheap pickup.
“Shares have been impacted by the slower than expected customer roll-outs, dilution from the recent financing and a broader market sell-off,” says Sangha in a client update on Thursday. “We believe the decline in the share price provides an attractive entry point for investors as annualized recurring revenues are growing quickly and will positively impact revenues in the coming quarters.”
The analyst lists four potential catalysts for VPY: (1) achieving 250,000 customers by the year end; (2) accelerating its ramp up with partner RBC; (2) increasing sales in the US; and (4) achieving EBITDA breakeven by 2020.
“We like VersaPay because of the company’s new Account Receivable product (ARC) solves a visible pain point and is a sticky product. Furthermore, ARC is scalable product with high gross margins and high recurring revenue,” says Sangha. “VersaPay estimates a market opportunity of $5B in annual recurring revenue, which is largely unpenetrated, with VersaPay being one of the first movers in streamlining the A/R process.”
The analyst is reiterating his “Buy” rating and $2.00 target price, which stems from a 7.0x EV/Revenue multiple of his 2019 estimates. Sangha’s target represents a projected one-year return of 66.7 per cent at the time of publication.