Sangoma Technologies is a double, Beacon’s Gabriel Leung says

Following the company’s Q1 results, Beacon Securities analyst Gabriel Leung remains bullish on Sangoma Technologies (Sangoma Technologies Stock Quote, Chart TSXV:STC).

This morning, Sangoma reported its Q1, 2019 results. The company lost $1.0-million on revenue of $21.44-million, a topline that was up 81 per cent over the same period last year.

“This is the first time in our history in which we have exceeded $20-million in quarterly revenue, and it’s great to see the contribution from Digium on our top line right away,” CEO Bill Wignall said. “The integration work unfolded pretty much as planned during our first quarter and the management teams are jointly working through expected savings during the second quarter, all of which is proceeding well. I’m pleased to see EBITDA more than doubling from last year and at $2.5-million, the first quarter is a quick start that puts us well on track to achieve our $10-million in guidance for the year. We remain very excited about Sangoma’s prospects following the Digium acquisition, and we are now even more confident in our ability to deliver a $100-million business in 2019.”

Leung characterized the quarter, which bested his expectations.

“STC announced Q1 FY18 results (ended Sept), which included revenues and EBITDA of $21.4M and $2.5M,” the analyst notes. “We were forecasting $18.6M and $1.5M. Last year, it did $11.8M and $1.1M. Fiscal Q1 results included 1 month contribution from Digium (i.e. the company’s largest acquisition to date). Recall that in 2017, Digium generated revenues of US$30M of which 40% was recurring and that it was operating at EBITDA breakeven. Drilling down into revenues, products was $15.2M (up from $9.0M last year), while services was $6.2M (versus $2.8M last year). Gross margins were 58%, which was up from 56% last quarter and 52%. In its MD&A, the company noted that gross margins are expected to increase slightly with a full quarter of Digium.”

In a research update to clients today, Leung maintained his “Buy” rating, but raised his one-year price target on Sangoma from $2.25 to $2.50, implying a return of 103 per cent at the time of publication.

Leung thinks STC will post EBITDA of $11.0-million on revenue of $101.5-million in fiscal 2019. He expects those number will improve to EBITDA of $15.9-million on a topline of $117.0-million the following year.