Look for Sangoma Technologies (Sangoma Technologies Stock Quote, Chart, News TSXV:STC) to deliver better results this time around in its upcoming quarterly report, says analyst David Kwan of PI Financial.
Kwan delivered an update to clients on Sangoma on Tuesday, saying the unified communications company should be a beneficiary of the new remote work environment.
Markham, Ontario-based Sangoma, a provider of voice, data and video software and hardware unified communications including its voice-over-IP solutions, will be releasing its fiscal third quarter 2020 financials on Wednesday, after having given better-than-expected preliminary Q3 results earlier this month. There, STC said its quarterly revenue is expected to exceed $36 million with adjusted EBITDA over $6 million, which compared to the at the time consensus expectation of $33.6 million and $5.3 million, respectively.
For its Q2 released in February, Sangoma hit $32.29 million in sales and EBITDA of $5.2 million, both records for the company, including 20 straight quarters of revenue growth.
Kwan said he is expecting Q3 revenue of $36.0 million and adjusted EBITDA of $6.1 million, with strong revenue growth aided by the acquisition of VoIP Innovations and EBITDA margins reaching a record level of about 17 per cent.
Saying that the quarter is likely to have a “Neutral” impact on the company and stock, Kwan is nonetheless optimistic on Sangoma going forward, saying,
“As more economies open up and businesses resume/ramp up operations (albeit not back to pre-COVID levels), demand is likely to improve albeit with the potential for hiccups down the road should new outbreaks pop up, especially in the fall,” Kwan said.
“With most employees likely to continuing working remotely (in some cases, indefinitely), the ability of organizations to provide them with the proper tools to communicate and collaborate effectively, efficiently, and seamlessly remains of utmost importance, which should benefit STC (and its UC/UCaaS peers). The Company is well positioned to continue to ride out the COVID-19 storm given is its large recurring revenue base (~50 per cent of revenue), strong margins and FCF generation, and solid
balance sheet,” Kwan wrote.
The analyst is calling for full fiscal 2020 revenue and adjusted EBITDA of $128.5 million and $20.1 million, respectively, and for fiscal 2021 revenue and adjusted EBITDA of $144.0 million and $24.3 million, respectively.
With the update, Kwan left unchanged his “Buy” rating and $2.70 per share target price, which at press time represented a projected one-year return of 34 per cent.
At the end of April, Sangoma provided an update on its operations during the COVID-19 pandemic, saying the company is operating as close to ‘business as normal’ as is possible under current conditions, with its business classified as an essential service under “most all government rulings.”
Management said it has transitioned work seamlessly to work-from-home settings in 20 countries and in more than 20 states in the US and that the company has over $20 million in cash reserves to draw upon and is maintaining all principal and interest payments on existing loans.