Following its most recent acquisition, PI Financial analyst Gus Papageorgiou has raised his price target on Lightspeed POS (Lightspeed POS Stock Quote, Chart, News TSX:LSPD).
On Monday, Lightspeed announced it would acquire an Australian point of sale company called Kounta for (US) $35.3-million. Kounta generated revenue of about $6.4-million in its most recent fiscal year. The company has approximately 7000 customer locations in Australia and New Zealand.
“Kounta’s impressive track record is thanks to its team, and we are excited to welcome them into the Lightspeed family,” said Dax Dasilva, founder and chief executive officer of Lightspeed. “When smart minds collaborate, our merchants are the main beneficiaries of the resulting innovation, ultimately enabling SMBs around the world to reach their full potential through our technology.”
Papageorgiou says this is a positive development for Lightspeed shareholders.
PI analyst Papageorgiou bases his Lightspeed POS target on 11.5x EV/Sales…
“Kounta extends LSPD’s reach into the Asia Pacific region, increases the TAM for its payments solution and allows for ARPU increases amongst Kounta’s customer base,” the analyst commented.
The analyst broke down the deal, which he says is accretive.
“The acquisition appears to have been made at 9.6x trailing EV/Sales given that revenue for Kounta was US$6.5M in its last fiscal year (June 2019).LSPD is trading at ~14x LTM EV/Sales,” he says. (The deal) boosts revenue by ~8%: Kounta maintains 7,000 locations vs LSPD at 51,000. However, Kounta’s monthly ARPU per location is roughly US$78 while LSPD’s was US$142, which includes a small amount of Payments. We believe with software modules such as inventory, analytics and Payments LSPD could bring Kounta’s ARPU closer to its own, representing a US$5.4m revenue opportunity. Kounta’s US$6.4M of revenue is approximately 8.2% of LSPD’s 2019 revenue.
Papageorgiou notes that Kounta comes with a strong distribution partner.
“Kounta’s biggest shareholder is MYOB, an Australian accounting and tax software company. MYOB claims over 1M customers and owns 50% of Kounta. We believe MYOB will be highly motivated to ensure the acquisition is a success by promoting the solution amongst its customer base which has a significant SMB component.
In a research update to clients today, Papageorgiou maintained his “Buy” rating on Lightspeed POS but raised his one-year price target on the stock from $38.00 to $39.00, implying a return of 14.8 per cent at the time of publication.
The analyst thinks Lightspeed will generate EBITDA of negative $19.5-million on revenue of $113.2-million in fiscal 2020.
“Our target price is premised on 11.5x EV/Sales on forward 12 month revenue one year out,” the analyst concluded.
The acquisition of Kounta follows on July’s pickup of Swiss-based POS firm iKentoo, which the former said would “significantly bolster” its presence in Europe. iKentoo has more than 3800 customers in fourteen countries.
“The addition of iKentoo aligns with our strategy to rapidly increase our global footprint, providing us with meaningful scale in new markets in which Lightspeed previously had a limited presence,” Dasilva said of the arrangement. “We believe their leading POS solution, respected brand name and large customer base of complex SMBs operating in many of our strongest verticals will perfectly complement our product offering and further enhance our growth trajectory.”
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