Buy Pivot Technology Solutions for a double, Echelon Wealth Partners says

Following the company’s first 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 Q1, 2019 results. The company posted Adjusted EBITDA of (US) $3.3-million on revenue of $295.6-million, a topline that was down 20 per cent from the $369.3-million in revenue the company posted a year prior.

“The shift between major and non-major customers combined with higher service margins resulted in a year-over-year gross profit margin increase from 10.6% to 12.4%, a 16.4% improvement,” CEO Kevin Shank said. “As we continued to see lower revenue from our major customer, the more efficient cost structure generated better results in Adjusted EBITDA as well. As expected, we are benefitting from the cost reductions we initiated in the second half of last year and into this year. We continue to invest in Smart Edge(TM) and saw notable progress. Smart Edge received two important endorsements during the quarter. Intel named Smart Edge its Network Communications Innovation Partner of the Year and Frost and Sullivan awarded Smart Edge its Technology Innovation award. This recognition supports the investment we’re making in Smart Edge and adds credibility to this edge native technology.”

Tucci says this is another sign that things are improving at Pivot.

“This quarter illustrates that Pivot can manage to deliver robust Adj. EBITDA & normalised cash-flow at a smaller revenue base with a focus on non-major customers who carry higher margins,” the analyst says. “The reductions in operating expenses are impressive and evident. We continue to believe Smart Edge would best be valued sold in its entirety to a partner or as a standalone spinout and expect further updates in due course. We continue to 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 as evidenced in these results. We note cash flows and gross profit remain healthy despite the relatively large recent 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. The credit facility renewal and extension at better terms adds a de-risking element to PTG’s balance sheet and should be viewed as a positive.”

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 102 per cent at the time of publication.

Tucci thinks PTG will post Adjusted EBITDA of (US) 21-million on revenue of $1.23-billion in fiscal 2019. He expects those numbers will improve to EBITDA of $27-million on a topline of $1.27-billion the following year.