Pivot Technology is making rapid progress, Echelon Wealth Partners says

Following the company’s fourth quarter results, Echelon Wealth Partners analyst Gianluca Tucci is maintaining his “Buy” rating on Pivot Technology Solutions (Pivot Technology Solutions Stock Quote, Chart TSX:PTG).

On Wednesday, PTG reported its Q4 and fiscal 2018 results. In the fourth quarter, the company posted (All figures USD) Adjusted EBITDA of $4.8-million on revenue of $301.6, a topline that was down 24.5 per cent from the same period last year.

“Fourth quarter revenues were down primarily due to lower volumes with major customers,” CEO Kevin Shank explained. “However, the 1.9% increase in gross margins resulting from a shift in mix to non-major customers combined with improved margins from our Pivot-Provided Services produced positive Adjusted EBITDA2. Momentum with our services strategy was reflected in Pivot-Provided Services revenues and we achieved planned cost reductions to partially offset ongoing product margin pressures going forward.”

Though the company posted record gross margins, both EBITDA and revenue fell below Tucci’s estimates for the fourth quarter. Still, the analyst thinks progress is being made at PTG.

“This quarter illustrates that Pivot can manage to continue generating robust cash flow at a smaller revenue base with a focus on non-major customers,” he says. “We continue to believe Smart Edge would best be valued sold in its entirety to a partner or as a standalone spinout once revenue generation occurs and expect more operational updates in due course. We believe much of the core legacy/integration issues at Pivot have been addressed in 2018 and the Company is in a much better position today to focus on shareholder value creation. We note cash flows and gross profit remain healthy despite the large fluctuations in quarterly revenue. The above developments on Smart Edge are the largest validator and confirmation of value additive, disruptive technology that we have learned to date.”

In a research update to clients today, Tucci maintained his “Buy” rating and one-year price target of $2.50 on Pivot Technology, implying a return of 124 per cent at the time of publication.

Tucci thinks the company will post Adjusted EBITDA of $18.0-million on revenue of $1.21-billion in fiscal 2019. He expects those numbers will improve to EBITDA of $23.0-million on a topline of $1.24-billion the following year.

“PTG is making rapid progress on its cost saving initiatives, having already eliminated $7M in annual cost from the business. We believe there is more room to cut costs from the business than just the disclosed $7M and PTG will continue this work in 2019. The impact of the cost reduction program on the overall business cannot be understated given the recent weakness in sales to major customers in right sizing Pivot for its current business climate,” the analyst adds.