PI raises price target on Martello following GSX acquisition

A new acquisition for Martello Technologies (Martello Technologies Stock Quote, Chart, News TSXV:MTLO) has PI Financial analyst David Kwan raising his price target on the stock.

On Tuesday, Martello announced that it would acquire Geneva-based Microsoft Office 365 specialist GSX for $18.7-million.

“There are few services whose performance is as critical to CIOs as Microsoft Office 365,” Martello CEO John Proctor said. “By acquiring GSX, the company extends its existing monitoring, analytics and network optimization capabilities deeply into Office 365, and increases monthly recurring revenue from this mission-critical space. As we take steps to exit the SD-WAN business, Martello will be focused on strengthening its SaaS-based DEM market opportunity going forward, to increase MRR and move towards positive adjusted EBITDA. We’re pleased to welcome GSX into the Martello family, and appreciate the confidence that National Bank and Vistara Capital Partners have placed in us — in today’s uncertain market conditions, our lenders recognize Martello’s market opportunity together with GSX.”

Kwan said this moves accelerates Martello’s timeline to positive Adjusted EBITDA.

“GSX significantly bolsters MTLO’s revenue base by ~50% (pro forma trailing revenue of ~$20M), adding much needed scale to the business that should help accelerate the timeline to positive Adj. EBITDA (we expect by early to mid-CY21),” he said. “Profitability should also benefit from some cost synergies related to the acquisition as well as the exit from the loss-generating Elfiq business.”

In a research update to clients today, Kwan maintained his “Buy” rating on Martello, but raised his one-year price target on the stock from $0.35 to $0.40, implying a return of 90.5 per cent per cent at the time of publication.

The analyst thinks MTLO will post EBITDA of negative $3.1-million on revenue of $13.3-million in fiscal 2020. He expects those numbers will improve to EBITDA of negative $1.4-million on a topline of $17.0-million the following year.

Kwan’s estimates, however, come with a caveat.

“Our estimates remain unchanged. We will revise them upon closing of the GSX acquisition (expected by May 28th),” the analyst noted.