Martello Technologies could be in demand with coronavirus outbreak: Paradigm Capital

Remote communications such as those enabled by Martello Technologies Group (Martello Technologies Group Stock Quote, Chart, News TSXV:MTLO) could become more in demand due to the coronavirus outbreak, says Paradigm Capital analyst Kevin Krishnaratne, who earlier this year launched coverage of the stock with a “Buy” rating and $0.70 target price.

The ongoing COVID-19 outbreak has done more than cause market upheavals worldwide and flatten industries such as tourism and air travel. The virus appears to have had an impact on business needs when it comes to conferencing and communications.

That’s according to Martello Technologies, a communications tech company with performance management, IT analytics and SD-WAN technology, which says that reliable remote collaboration such as that provided by Martello user VOIP Networks, a Mitel partner, has become more prevalent since the onset of COVID-19.

“Mitel has continued to evolve its cloud collaboration and communication platform, and has recognized the importance of delivering a stellar user experience for these critical remote working tools,” said Martello CEO John Proctor in a press release on Thursday.

“As businesses struggle with disruptions related to COVID-19, Mitel customers are very well positioned to facilitate remote work and ensure continued productivity.”

On the connection between the virus outbreak and Martello’s business, Krishnaratne said in an email on March 5, “MTLO’s solutions relate to voice quality monitoring software for Mitel’s phone networks and SD-WAN technology, the latter which helps customers create more robust and secure Internet connectivity. These solutions can help customers work better remotely (phone calls, online meetings, online workplace collaboration), activities which in theory should increase in situations such as the current COVID
outbreak.”

Krishnaratne initiated coverage of MTLO on January 17, saying that Martello’s relationship with Mitel puts it in a good position for growth alongside the latter, a leader in unified communications.

“Martello enjoys a strategic agreement with Mitel, with its software monitoring the voice quality of about three million telephony users versus Mitel’s base of ~70 million. While this reflects ~4 per cent penetration, we estimate that ~20 per cent of Mitel users on a software plan are subscribed to the premium tier, which includes Martello’s solution.

Beyond opportunities in voice, Martello acquired SDWAN and IT Operations Analytics (IT Ops) technologies to help enterprises better optimize and analyze their networks. In our view, Martello is just scratching the surface, with related revenue in the single-digit millions versus TAM’s in the $100s of millions,” Krishnaratne wrote.

The analyst also noted MTLO’s strong financial model which has upside potential via cross-selling, its own partners and through M&A activity.

Krishnaratne called for Martello to hit $13.2 million in revenue for fiscal 2020, $15.7 million in fiscal 2021 and $19.0 million in fiscal 2022. Adjusted EBITDA is expected to go from negative $3.2 in fiscal 2020 to negative $2.4 million in fiscal 2021 and to negative $0.1 million for fiscal 2022. As of publication date,

Krishnaratne’s $0.70 target represented a projected 12-month return of 125.8 per cent at the time of publication.

The analyst added in his March 5 email, “Since we launched, MTLO reported Q3 (Dec) results that were in line (although we did see a softer than expected growth rate in the Mitel business at ~25 per cent year-over-year versus recent trends in the 30 per cent year-over-year range offset by better growth in another business, IT Visualization tools).

Mitel’s business can be lumpy as it relates to new customer wins, so the slight deceleration is not a concern.”