Following the close of a sizable financing, Beacon Securities analyst Gabriel Leung has maintained his “Buy” rating on Sangoma Technologies (Sangoma Technologies News, Stock Quote, Chart TSXV:STC).
On July 16, Sangoma announced it had completed a previously announced financing of just over $23-million. The company said it would use the proceeds in part to fund acquisitions.
The analyst says this development puts the company in a better position to succeed.
“While we think acquisition targets could be inclined to take stock as part of any M&A transaction, ultimately, we believe cash is king. As such, with its healthy war chest, we believe Sangoma will be in a much better position to bid and win on potential acquisition targets,” Leung said. “We believe future acquisition targets could be focused around augmenting Sangoma’s existing recurring revenue base (i.e. SaaS-based unified communication services), expanding its geographic footprint, and adding more revenue/margin scale. In our opinion, while adding revenue scale (i.e. like the Digium acquisition) could be an accretive proposition (i.e. as duplicate costs are removed), ultimately, we believe that adding faster growing, sticky (and likely more expensive) SaaS-type revenues could lead to the market rewarding Sangoma with a higher valuation multiple.”
In a research update to clients today, Leung maintained his “Buy” rating and $2.50 one-year price target on Sangoma, implying a return of 59 per cent at the time of publication.
The analyst thinks STC will post EBITDA of $11.6-million on revenue of $108.8-million in fiscal 2019. He expects those numbers will improve to EBITDA of $15.5-million on a topline of $124.0-million the following year.