Espial Group has a 113 per cent upside, Mackie Research says

Espial Group (Espial Group Stock Quote, Chart TSX:ESP) reported fourth quarter financials on Thursday, with Mackie Research analyst Nikhil Thadani saying that the video software company is taking it one step at a time.

Q4 revenue of $6.7 million was slightly above Thadani’s $6.4 million estimate but below the consensus $7.0, while adjusted EPS of $0.03 was better than expected.

ESP was down 43 per cent over 2018 but Thadani says that the stock should benefit as investors gain comfort in the company’s subscription model transition and a successful return to top line growth in 2019.

“While the stock may decline in the near term as 2019 consensus gets revised a bit lower, the stock is likely closer to its floor,” says Thadani in a client update on Friday. “ESP is down approx. seven per cent since Q3 results in November. Further downside may not be as pronounced as it has been in the past twelve months. Q4 results last night were more or less in-line with our estimates.”

“More importantly, ESP’s cash balance, which should help provide a floor for the stock price, recovered nicely quarter-over-quarter as we expected and per comments on the Q3 earnings call. That said, it appears ESP will invest to grow its subscription revenue in 2019, which could lead to more modest 2019 EBITDA and possibly some quarters just below EBITDA break-even. We walked back our higher 2019 revenue growth expectations, which we modelled after Q3 results. We also expect 2019 consensus to be lowered a bit,” he says.

Thadani has lowered his 2019 estimates from revenue and EBITDA of $29.3 million and $2.5 million, respectively, to $28.6 million and $1.1 million, respectively. His new 2020 forecast calls for revenue of $32.4 million and EBITDA of $4.5 million.

Thadani is maintaining his “Buy” rating and $2.60 target price, representing a projected return of 113 per cent at the time of publication.