VersaPay has an upside of 80 per cent, says PI Financial

VersaPay (VersaPay Stock Quote, Chart, News TSXV:VPY) is setting the table for a big 2020, says David Kwan, analyst for PI Financial.

In a corporate update to clients on Wednesday, Kwan reiterated his “Buy” rating and $3.00 target price, saying the rollout of VersaPay’s platform to key customers RBC and Mastercard should start accelerating over coming quarters.

Automated accounts receivable company VersaPay held an Investor Forum in Toronto on Tuesday, with presentations from select clients such as Mastercard, US Bank and RBC.

“We're very thankful for our clients and partners who participated in our investor forum today,” said CEO Craig O’Neill in a press release. “Their presentations served to underscore our conviction that the era of Customer-Centric AR has arrived, and VersaPay is at the forefront of this movement, helping suppliers deliver a great customer experience in how they bill and collect payment.”

Kwan attended the event, calling it a positive for the stock.

In his discussion note, the analyst said that while the rollout of VersaPay’s ARC platform to RBC’s business customers has taken longer than expected, based on the presentation and subsequent feedback, he feels “more confident” that the contribution from the RBC channel will ramp up in the coming quarters.

“We were told that there are now ~160 (trained) reps out selling ARC and that VPY deals constitute a material portion of their pipeline. Deals they are working on include a smaller government agency (~15K invoices/month) which should help lead to wins with other government customers and a large enterprise client (+250K invoices/month; would be one of VPY’s largest customers) where a decision appears imminent,” Kwan writes.

With Mastercard, the rollout has been quicker to take hold, says Kwan, with the initial plan being to implement ARC to about eight to ten of Mastercard’s large issuer bank customers.

The company says that one bank has already been signed (but is not live yet) while Mastercard has seen plenty of interest in the meantime.

“Given this valuable solution will be free to business customers (Mastercard will earn fees on the virtual card transactions while VPY will receive a minimum ‘access’ fee from Mastercard with increased revenue as the business grows), we believe end customer adoption could accelerate at a much faster pace relative to the RBC partnership,” said Kwan.

VPY also announced that it has signed a partnership with US Bank, one of the largest banks in the US and the bank that has already referred several large commercial real estate deals to VPY, something Kwan expects will continue in the future.

The analyst is leaving his estimates unchanged, calling for fiscal 2019 revenue and adjusted EBITDA of $9.3 million and negative $8.4 million, respectively, and for fiscal 2020 revenue and EBITDA of $17.2 million and negative $2.5 million, respectively.

Kwan’s $3.00 target represents a projected 12-month return of 79.6 per cent at press time. VersaPay delivered its latest quarterly results on August 7 where it reported second quarter 2019 revenue of $2.18 million, an 88-per-cent increase year-over-year and an adjusted EBITDA loss of $2.62 million, compared to a loss of $2.81 million a year earlier.