There’s still lots of upside in Sangoma Technologies, PI Financial says

Sangoma Technologies (Sangoma Technologies Stock Quote, Chart TSXV:STC) reported its second quarter financials last week, featuring revenues of $29.2 million, a 149 per cent year-over-year increase, and Adjusted EBITDA of $2.4 million, an 89 per cent year-over-year increase.

The quarterly numbers amounted to an “Oscar worthy performance,” says David Kwan, analyst with PI Financial, who in a Tuesday earnings update reiterated his “Buy” rating while increasing his target price from $2.25 to $2.60.

Kwan says that $29.2 million in quarterly revenues beat his estimate of $25.3 million (which was also the consensus estimate), while the $2.4 million in Adjusted EBITDA was in line with his estimate but above the consensus $2.2 million.

The analyst notes that STC ended the quarter with $18.4 million in net debt, down from $19.9 million, with free cash flow of $2.6 million, which Kwan says will help provide increased financial flexibility and potentially lead to more M&A activity later in the year.

Overall, Kwan calls the impact of the quarterly results a positive.

“STC continues to execute exceptionally well from an operational and financial perspective,” Kwan says. “As well, its proven track record in generating significant value through its active M&A program, especially with the recent increases in deal sizes, should help provide comfort to investors that the outperformance can continue as it looks to further consolidate the market. Despite the recent surge in the share price, including on the back of the strong Q2 beat, we believe there is still significant upside to the stock.”

The analyst expects Sangoma to generate fiscal 2019 Adj. EBITDA of $11.3 million on revenue of $107.4 million and fiscal 2020 Adj. EBITDA of $16.6 million on a top line of $122.0 million. His new $2.60 target represented a projected return of 45.3 per cent at the time of publication.