Clarus Securities kicked off coverage of Quisitive Technology Solutions (Quisitive Technology Solutions Stock Quote, Chart, News TSXV:QUIS) on Thursday with a “Speculative Buy” rating and C$1.25 per share target price, with analyst Noel Atkinson saying Quisitive is well-positioned to capitalize on timely tech trends.
Based in Irving, Texas, and with offices across the US, Canada and India, Quisitive is a partner and National Solution Provider for Microsoft to migrate and maintain enterprise business solutions using Microsoft Cloud. The company also has a cloud-based payment processing and analytics platform called LedgerPay which is offered in partnership with global retail analytics company dunnhumby. Launched as a public company in 2018, last year Quisitive was named Microsoft US Partner of the Year for IT Solutions.
Atkinson said Quisitive is uniquely positioned as a service provider to help companies manage the two leading trends in business today, namely, the rise of cloud computing solutions and how bricks and mortar store chains need to evolve in order to compete with online retailers.
With LedgerPay, Atkinson related that Quisitive spent over two years developing the proprietary Azure-based retail platform, saying, “We believe LedgerPay – announced in March 2020 – could be a transformational revenue stream for Quisitive. When combined with expected strong organic growth for its IT solutions unit due to companies increasingly embracing cloud technology, we expect Quisitive to more than double its revenues between 2020 and 2022 to over US$100 million.”
Quisitive announced its fourth quarter and full year 2019 financials at the end of April, showing 2019 revenue of $18.5 million compared to $12.6 million for 2018. Gross margin for the year was $7.9 million or 43 per cent and the net loss was $7.4 million. (All figures in US dollars except where noted otherwise.)
2019 was a big year for Quisitive, management said in the Q4 commentary, but so has 2020 been so far: subsequent to the year end, the company announced the release of LedgePay, closed on the acquisition of Microsoft partner Menlo Technologies and signed a cloud services agreement with a major healthcare company.
“Quisitive enters 2020 in a strong cash position due to substantial 2019 year-over-year growth and growing recurring revenues,” said Mike Murphy, Quisitive CFO, in the press release. “Based on recent acquisitions and investments in our SaaS solution portfolio, the company is well positioned to capitalize on both organic and acquisition growth in 2020.”
Atkinson said he expects only a modest drag from COVID-19 on Quisitive’s business in its IT Solutions segment, with the analyst expecting LedgerPay to add $3.5 million in revenue in 2020. In 2021, Atkinson sees LedgerPay revenues to grow by nearly 3x year-over-year to $9.9 million and then up to $38.5 million for 2022.
All told, the analyst is expecting 2020 revenue and adjusted EBITDA of $49.1 million and $6.3 million, respectively, and 2021 revenue and adjusted EBITDA of $66.5 million and $8.8 million, respectively.
On valuation, Atkinson said, “Our 12-month price target for Quisitive is equal to 12.5x 2022e EV/Adj. EBITDA discounted one year at 15 per cent. We believe 2022 is a reasonable target year as by then we expect LedgerPay to be a large component of Quisitive’s total revenue and profitability.”
“Our target multiple is in between the consensus average 2021e EV/Adj. EBITDA multiples of the two peer groups. We would revisit our target multiple if LedgerPay can scale revenues and profitability above our forecast,” Atkinson said.
At press time, Atkinson’s C$1.25 target represented a projected return of 83.8 per cent.
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