Solium Capital is poised for more growth, Haywood Securities says

Solium Capital (TSX:SUM) just produced solid revenue and earnings beats in its latest quarterly results, with more of that to follow, says Pardeep S. Sangha, analyst for Haywood Securities, who on Wednesday upped his target price to C$17.00 from C$15.50 while maintaining his “Buy” recommendation.

Cloud-based SaaS provider for financial reporting and equity-based administration, Solium saw its revenue jump to $28.3 million for the third quarter, a year-over-year increase of 38 per cent, while its Adj. EBITDA rose to $5.4 million, more than doubling the $2.1 million from Q3/17. (All figures in US dollars unless noted otherwise.)

Sangha says Solium’s third quarter easily beat his and the consensus estimates on both counts, with Sangha and the Street predicting revenue of $26.4 million and $26.1 million, respectively, and Adj. EBITDA of $2.1 million and $2.6 million, respectively.

“We like Solium because of the Company’s consistent track record of top line growth, strong margins, high recurring revenue base, large global market opportunity and current valuation discount compared to its peer group,” says Sangha in a client update.

“The Company’s growth over the next year will be driven by its recent Morgan Stanley and UBS contracts,” he says. “These customers are a strong endorsement for Solium’s product. In addition, Solium has a large war chest of cash, which positions the Company to acquire books of business from wealth management or brokerage firms in order to accelerate growth.”

Sangha says that according to management, the Morgan Stanley and UBS migrations are not yet halfway completed and thus he is expecting to see more of the healthy revenue growth going forward, with the company on track to migrate all of the Morgan Stanley and UBS clients by the end of 2019.

The analyst has revised his estimates upwards, now calling for CY19 revenue and Adjusted EBITDA of $137.3 million (was $133.7 million) and $31.7 million (was $31.0 million), respectively. He is forecasting Adjusted EBITDA margins of 15.1 per cent in CY18, 23.1 per cent in CY19 and 25 per cent in CY20.
Sangha’s new target represents a projected return of 52.1 per cent at the time of publication.