Kneat has a 112 per cent upside, says Mackie Research

Look for revenue to pick up over the second half of the year for Kneat.com (Kneat Stock Quote, Chart TSXV:KSI), according to Mackie Research analyst Nikhil Thadani, who in a Thursday management update to clients reiterated his “Buy” rating and $2.50 target.

Halifax-based SaaS company Kneat reported its fourth quarter and year ended December 31 2018 financials on Wednesday, coming in with $465,000 in Q4 revenue compared to $77,000 a year earlier and a net loss of $624,000, a decrease from negative $406,000 a year earlier. CEO Eddie Ryan saying Kneat will take 2019 to scale up its customer base.

“During the fourth quarter, Kneat ensured seamless implementations at its new client sites, secured additional customers and advanced the functionality of our platform,” said Ryan, in a press release. “I am pleased with the progress we made during 2018 and plan to build on this momentum in 2019 as we work toward milestones and scaling within our current customer base, build and invest in our team and deliver on a strong pipeline of targets.”

Thadani says that while the Kneat’s top line was mostly in line with his estimates, the company is showing a nice quarter-over-quarter revenue trajectory, which supports his thesis of a second half of 2019 deployment driven revenue inflection.

“The pace of existing contract deployments (revenue build precursor) and new contract wins are likely the key determinants of KSI’s stock price trajectory as the company scales deployments. This is especially true as Kneat’s progress in signing new 2018 contracts is not yet reflected in financial results (seven new customers and scaling by two existing customers leading to year end site presence of 200, up ~13x y/y),” says Thadani.

“We are seeing positive glimpses, which bode well for 2019. For example, in March, the company announced a global biotech (with 20,000 employees) chose Kneat to transition to paperless validation for an initial US plant. A February partnership with global technology outsourcer, HCL could aid in scaling deployments. In February, a global healthcare customer (since 2018) went live at European site and is now expanding to a second site (in the USA),” he writes.

Thadani says he has made no significant changes to his forecast, which calls for 2019 revenue and EBITDA of $3.0 million and negative $3.2 million, respectively, and 2020 revenue and EBITDA of $9.2 million and $1.9 million, respectively.

The analyst’s $2.50 target represented a projected 12-month return of 111.9 per cent at the time of publication.