Laurentian Bank lowers target on Mediagrif

The new five-year plan from Mediagrif Interactive Technologies (Mediagrif Interactive Technologies Stock Quote, Chart, News TSX:MDF) looks good on paper but the proof will be in the execution, says Laurentian Bank Securities analyst Nick Agostino, who on Wednesday reviewed the company’s latest quarterly results.

Montreal-based Mediagrif, an e-business networks and e-commerce solutions company, released its third quarter fiscal 2020 results on Tuesday along with a new five-year strategic plan to turn the company into a cloud-based SaaS business.

Management said that growth under the new approach will come from M&A activity into new areas,
organic growth and a new product development strategy, while the five-year plan is to be based around three pillars — e-commerce, strategic sourcing and supply chain collaboration.

“We are excited to provide an update on our now-approved five-year strategy aimed at accelerating the Company's growth. We've already implemented several elements of the plan, as demonstrated by the acquisition of k-eCommerce. Our goal is to hit the ground running and continue to implement the plan swiftly and effectively,” said Luc Filiatreault, President and CEO, in a press release.

On the quarter, MDF delivered revenue of $18.1 million, down from $20.9 million a year earlier, while adjusted EBITDA of $2.5 million (down from $4.1 million a year earlier) was negatively impacted over the quarter by non-recurring costs of $1.4 million, including termination benefits of $1.1 million and professional services fees in connection with the acquisition of k-eCommerce of $0.3 million. Net loss for the Q3 was $1.9 million or $0.13 per share compared to a profit of $2.9 million or $.19 per share a
year earlier.

In his report, Agostino said the $18.1 million in revenue was below his and the consensus estimate of $19.1 million and the adjusted EBITDA of $2.5 million was also below his and the consensus estimate of $4.1 million. The analyst noted a surprising four per cent decline in MDF’s Orckestra revenues while the company’s B2B platforms took a step back in the quarter with reported organic growth of 1.5 per cent versus five per cent last quarter and 3.4 per cent in the Q1.

“We like the idea of transforming MDF into a ‘fast growing, cloud-based commerce technology company with a SaaS business model,’” wrote Agostino. “Furthermore, its vision of becoming a ‘>40 per cent sales growth + EBITDA margin’ company aligns with our previous expectations that MDF is a potential ~8-10 per cent organic growth story with EBITDA margins of 25- 30 per cent; although the target markets growth CAGR
noted above may favour more sales. Nevertheless with an expected 12-18 month period to show traction, much lifting needs to be done in the interim to convince the market MDF is on the right path as the path itself is not linear.”

Agostino says that although MDF is expensive on an EBITDA basis, shares currently trade at 1.3x his next twelve month sales estimates versus the company’s peers at 3.0x.

The analyst is keeping his “Buy” rating but dropping his target from $8.50 to $7.00 per share to reflect his newly adjusted forecast, which calls for fiscal 2020 revenue of $75.4 million and adjusted EBITDA of $12.7 million.

At press time, Agostino’s target represented a projected 12-month return of 23 per cent.