VOTI Detection has a 142 per cent upside, says Haywood

Impressive revenue growth and improving margins should make you a buyer of X-ray security systems company VOTI Detection (VOTI Detection Stock Quote, Chart, News TSXV:VOTI), according to Haywood Capital Markets analyst Daniel Rosenberg, who on Tuesday released to clients an update on the company.

Montreal-based VOTI, which develops X-ray security systems based on 3D Perspective technology and has installed scanners in more than 50 countries, according to the company, announced on Tuesday that its model XR3D-6D detection scanner has completed the Transportation and Security Administration (TSA) air cargo certification program and has been granted ‘Qualified’ status from the TSA, said to be the highest level of certification in the industry and follows a multi-year effort by VOTI.

VOTI president and CEO Rory Olson called the certification a game-changing development for the company, saying that he expects “an immediate uptick” in orders as a result of the certification.

“The road to ACSTL approval involved the highest and most rigorous testing standards in the industry. We are extremely pleased that our XR3D-6D stood up to these tests. With this granting of ‘Qualified’ status from the TSA, we are now able to aggressively penetrate not only the air cargo market in the US but globally as well. The certification of additional tunnel sized scanners in our fleet continues to be a key priority for us and remains a critical component of our overall growth strategy,” wrote Olson in a press release.

VOTI first gained TSA acceptance onto the ‘Approved’ section of the Air Cargo Security Technology List (ACSTL) in May of 2018 before passing field tests to achieve the ‘Qualified’ status.

Rosenberg says that Qualified status through the TSA will allow VOTI to bid in new processes where certification is mandatory and that it will meaningfully expand the company’s total addressable market.

“VOTI’s certification in cargo-screening will help to accelerate VOTI’s growth into new verticals,” writes Rosenberg. “Some industry participants utilize TSA certification as a qualifier to bid on RFPs. Having earned the certification on its first product, we expect several more to follow, which should meaningfully expand VOTI’s reach into new markets.”

“VOTI is in the early days of establishing itself as a leader in the threat detection market. The Company is seeing strong traction from its differentiated technology with marquee customers. Impressive revenue growth combined with improving margins make VOTI an attractive investment opportunity at current levels. We would be buyers here,” says Rosenberg.

The analyst is maintaining his “Buy” rating and $3.75 target price, which represents a projected 12-month return of 141.9 per cent at the time of publication.

Rosenberg thinks VOTI will generate fiscal 2019 revenue and EBITDA of $31.5 million and negative $0.3 million, respectively, and fiscal 2020 revenue and EBITDA of $37.7 million and $0.5 million, respectively. The analyst figures that VOTI is currently trading at 1.0x his calendar 2020 EV/Revenue estimates which compares to the company’s peer group average of 2.3x.

VOTI announced earlier this month that it was entering into an underwriting agreement with a syndicate of underwriters led by GMP Securities and including Haywood Securities Inc., Canaccord Genuity, Desjardins Securities and Echelon Wealth Partners for the sale of roughly three million common shares at a price of $1.75 per share for gross proceeds of about $5.3 million. The company says that the net proceeds will be used to provide additional working capital and for general corporate purposes.