Three Canadian fintech stocks to watch in 2020

Opinions vary when it comes to the future of the fintech sector, from claims that cryptocurrencies are going to take over the world to doubts about the profitability of emerging e-commerce platforms.

But while the space has certainly had its share of empty promises, investors can still find a few winners among the pack of fintech wannabes.

But analysts covered by Cantech Letter have found a few Canadian fintech stocks worthy of your attention.

We start with new kid on the block Lightspeed POS (Lightspeed POS Stock Quote, Chart, News TSX:LSPD), which just IPO’d this spring to much fanfare. The stock has seen impressive gains over the first few months but there is still upside to be had, so says Richard Tse of National Bank Financial.

“We do not believe the short-term forecasts capture that growing opportunity which is why we look ahead beyond fiscal 2020 to capture a more normalized run rate in valuing this name,” Tse wrote in a recent client update on the stock.

“In Payments alone, we believe it will approach a contribution of just under $100 million in revenue as we look ahead over the next two years from just under $8 million this year. We’d refer you to our initiation of coverage report for a detailed analysis as to how we’ve forecast this name looking ahead. For now, the continued execution has us increasing our estimates while ascribing a (higher) implied valuation in light of growing momentum from incremental growth drivers,” says Tse.

Early last month, point-of-sale software provider Lightspeed posted its first quarter fiscal 2020 financials which beat Tse’s estimates with revenue of US$24.1 million (up 38 per cent year-over-year) and an EBITDA loss of US$9.09 million.

Tse rates Lightspeed as “Outperform” with a one-year target price of $52.00, representing a projected return of 29 per cent at press time.

Toronto-based VersaPay (VersaPay Stock Quote Chart, News TSXV:VPY) also gets the nod, this time from Haywood Securities analyst Daniel Rosenberg who says that while the SaaS-for-accounts-receivable company has fallen off from highs hit last year, as the company starts picking up more clients there’s likely a revenue ramp coming up.

“Following a few soft growth quarters, VersaPay is now showing signs of improvement with a strong backlog, ARR growth and new customer wins,” said Rosenberg in a quarterly update to clients in August. “We maintain our target price of $2.30 and believe VersaPay offers an attractive return to investors at these levels.”

What’s more, Rosenberg says that Versapay is a cheap pickup compared to its fintech peers.

“VersaPay is currently trading at 4.7x EV/Revenue of our CY20 estimates versus the peer group average at 5.0x EV/Revenue multiple of CY20 estimates,” Rosenberg notes.

The analyst has a “Buy” rating for VPY with a one-year target price of $2.30, representing a projected return of 36 per cent at press time.

Rounding out the list is Mogo (Mogo Stock Quote, Chart, News TSX:MOGO), a stock which has had its ups and downs over the years but is due for a win, according to Mackie Research analyst Nikhil Thadani.

Here’s what Thadani had to say about Mogo’s partner lending model, which the analyst sees as a key revenue driver for the company going forward.

“We have previously suggested that Mogo’s lending marketplace partnership/s could open another growth avenue, likely in 2020. To this end, management indicated that the first consumer loan book oriented partnership could be in place by the end of 2019 (including loan originations). The company could also announce wealth management related partnership/s by the end of the year,” wrote Thadani in a quarterly update to clients last month.

“We believe such partnerships help Mogo monetize new and existing members in a more capital efficient manner. Mogo would likely collect a fee, not take on credit risk and most importantly, not utilize its cash to make loan advances, while at the same time leverage Mogo’s core competence of adjudicating credit risk online,” Thadani writes.

The analyst is rating Mogo a “Speculative Buy” with a target price of $10.00, representing a projected 12-month return of 150 per cent at the time of publication.