kneat.com keeps $2.50 price target at Mackie Research

Despite the market turbulence kneat.com (kneat.com Stock Quote, Chart, News TSXV:KSI) is well-positioned to bring strong returns over the next 12-months, says Mackie Research analyst Nikhil Thadani, who published a corporate update on the company on Thursday.

Kneat.com, whose software enables paperless compliance solutions for life sciences customers, released its fourth quarter results on April 22, showing revenue that tripled year-over-year to $1.4 million. For the fiscal year, total revenue was also a triple to $3.95 million.

CEO Eddie Ryan said the strong revenue growth came from its growing list of tier one pharma companies now adopting kneat’s software.

“The growth in our SaaS revenue is driven by Kneat’s focus on delivery of a SaaS first model. This focus on SaaS, combined with our maintenance revenue stream has contributed to the strong growth in our annual recurring revenue,” Ryan said in a press release.

On the impact of COVID-19 on kneat’s business, Ryan said it been business as usual for the majority of customers.

“A small proportion of our prospects are slowing their buying decisions temporarily but on the other hand others are accelerating their decision to go paperless because of the increased business continuity benefits that it can deliver,” Ryan said.

Thadani called the Q4 results strong, saying the $1.4 million in revenue was above his estimate of $1.1 million and the consensus of $1.2 million. Thadani chalked the difference up to on-premise license and professional services revenue, while also noting that annual recurring revenue (for kneat, SaaS and maintenance revenue) was about $2 million, a jump from exceeding $1 million ARR just two quarters earlier.

The analyst also noted KSI’s public equity financing which closed on March 12 for gross proceeds of $13 million along with a non-brokered private placement for $1.8 million.

That leaves KSI with pro forma cash of about $17 to $18 million, according to Thadani, which will give kneat the flexibility to keep deploying already-won contracts during the currently challenging economic conditions.

“We’ve tempered our 2020 revenue estimates by a couple million dollars to better reflect current business environment uncertainties. We’re introducing 2021 estimates and model ~80 per cent total revenue growth, aided by new contract wins and deployments, which is well supported by Kneat’s recently strengthened balance sheet,” Thadani said.

“We have previously speculated that KSI’s potential life sciences customers could include, Eli Lilly, Glaxo SmithKline, Pfizer, Roche, Ranbaxy, Sanofi, Johnson & Johnson. Contract news with any of these could be a very positive catalyst for the stock,” he wrote.

Thadani now estimates KSI’s 2020 numbers at revenue of $7.3 million (previously $9.6 million) and EBITDA of negative $2.3 million (previously positive $2.5 million). For 2021, he is calling for revenue and EBITDA of $13.2 million and negative $0.9 million, respectively.

With the update, Thadani is reasserting his “Buy” rating and $2.50 target price, which at the time of publication represented a projected 12-month return of 28 per cent.

“Recent COVID-19 related developments should provide a tailwind for adoption (& recurring revenue), especially by larger customers,” Thadani wrote.