Kneat.com is a Canadian tech junior you should know, Mackie says

Calling kneat.com (Kneat Stock Quote, Chart TSXV:KSI) a rare high quality Canadian tech story, analyst Nikhil Thadani of Mackie Research on Wednesday maintained his “BUY” rating and $2.50 target after seeing Kneat’s latest quarterly results.

Data and document management software company Kneat released its first quarter fiscal 2019 financial results, coming in with total revenue of $414,000 and an EBITDA loss of $871,000. Thadani was calling for a top line of $449,000 and an EBITDA loss of $975,000.

The analyst notes that Kneat signed a new contract (on-premise) over Q1 and has signed a total of eight new customers since early 2018, with only three of those customers having gone live so far.

Thadani says that since Mackie launched coverage of KSI in January, the stock is up more than 40 per cent and that on a 2020 basis, the stock is now trading at just under 9x Sales versus US software and SaaS companies at about 9x 2020 Sales and Canadian companies at about 8x Sales.

“We have consistently disagreed with the thesis that quality Canadian tech stocks (e.g., Shopify) ought to trade at a discount to US names, as such we are pleased to see investors reward high quality Canadian public tech companies (which, we agree are rare finds). We reiterate our position that KSI’s current valuation provides room for upside as more than $20 million Annual Recurring Revenue (ARR) begins to come into view, especially aided by H2/19 contract deployment pick up,” Thadani writes.

Thadani says KSI’s potential life sciences customers could include, Eli Lilly, Glaxo SmithKline, Pfizer, Roche, Ranbaxy, Sanofi, Johnson & Johnson and that contract news with any of these companies could be a “very positive” catalyst for the stock. Data pertaining to existing contract deployments and/or expansions would also be a positive catalyst.

The analyst thinks that Kneat will generate fiscal 2019 revenue and EBITDA of $2.7 million and negative $3.1 million, respectively, and fiscal 2020 revenue and EBITDA of $9.2 million and negative $2.5 million, respectively. His $2.50 target represents a projected return of 67.8 per cent at the time of publication