VersaPay is upgraded to a “Buy” at Haywood

Following the company’s fourth quarter results, Haywood Securities analyst Pardeep Sangha has upgraded fintech junior VersaPay (VersaPay Stock Quote, Chart TSXV:VPY).

On Tuesday, VersaPay reported its Q4 and fiscal 2018 results. In the fourth quarter, the company posted an Adjusted EBITDA loss of $3.51-million on revenue of $1.45-million, a topline that was up 37 per cent over the same period last year.

“The fourth quarter was a record quarter in terms of revenue growth, with total revenue of $1.45 million, up 28% quarter-over-quarter and 37% year-over-year,” CEO Craig O’Neill said. “This was mainly attributed to the strong growth in the ARCTM platform where, for the twelve-month period, subscription revenue increased to $2.30 million, up from $1.13 million the year before or 104%. ARC ARR grew to $3.30 million at the end of 2018, up 86% from the end of fiscal 2017. ARC now represents approximately 63% of our recurring business. We also had an extremely strong quarter in ARC sales for Q4. The team closed deals valued at approximately $1.48 million in new ARR, building on an already healthy backlog for future ARC revenues in the coming quarters.”

Sangha says that even though he regards the fourth quarter as one of “mixed” results for the company, he thinks its sales momentum this may signal a turnaround.

“Following a few soft growth quarters, VersaPay is now showing signs of an improved outlook with strong backlog, ARR growth and new customer wins. The Company’s shares are down from 2018 highs but have rebounded 27% YTD,” the analyst says.

In a research update to clients Wednesday, Sangha raised his one-year price target on VersaPay from $1.30 to $2.00 and changed his rating on the stock from “Hold” to “Buy”. The analyst’s new price target implied a return of 37 per cent at the time of publication.

Sangha thinks VPY will post Adjusted EBITDA of negative $9.4-million on revenue of $9.1-million in 2019. He expects those numbers will improve to EBITDA of negative $3.6-million on a topline of $17.5-million the following year.

“Operationally the Company is building momentum with recent contract wins, increasing ARR, improving backlog and end customer growth,” the analyst adds. “Management continues to have a bullish outlook. We are expecting growth to continue into Q1.”