BSM Technologies is undervalued, Paradigm Capital says

Recent results are more evidence that BSM Technologies (BSM Technologies Stock Quote, Chart TSX:GPS) is cheap compared to its peers, says Paradigm Capital analyst Kevin Krishnaratne.

On February 5, BSM reported its Q1, 2019 results. The company lost $85,000 on revenue of $15.7-million, a topline that was up two per cent over last year’s first quarter.

“We are pleased to begin fiscal 2019 with a significant improvement in our subscriber growth metrics,” BSM CEO Louis De Jong said. “Moving forward in the year, we are focused on increasing sales momentum following the January launch of BSM illuminate, our analytics software platform designed to enable data-driven operational decision making. We are encouraged by the feedback we have received following the introduction of BSM illuminate and are confident in its future success.”

Krishnaratne summarized the report.

“BSM reported Q1 results that featured growth of 3.5K subscribers, helped by strength in government and service verticals and reflected a jump in gross adds at 6.2K (3.1K in Q4) and better churn at 2.7K (3.7K in Q4). Revenue and EBITDA as reported reflected new accounting standards related to the recognition of revenue over customer contracts which now see hardware sales recognized over the duration of term (four years), versus the prior standard of reporting sales all up front.”

In a research update to clients today, the analyst maintained his “Buy” rating and one-year price target of $1.50 on BSM Technologies, implying a return of 76 per cent at the time of publication, including dividend.

Krishnaratne thinks BSM will generate EBITDA of $6.2-million on revenue of $63.7-million in fiscal 2019.

“We continue to value BSM based on 2x revenue, which yields $1.50 target,” the analyst adds. “Shares are currently trading at ~1.2x sales versus traditional telematics companies at +2.5x and compared to software compass in the +5.0x range.”