PI Financial analyst David Kwan likes the look of the recently completed acquisition by Martello Technologies Group (Martello Technologies Group Stock Quote, Chart, News TSXV:MTLO), arguing in a corporate update to clients Monday that the stock is looking cheap compared to its peer group.
Real-time applications analysis company Martello Technologies announced in April and closed last week the acquisition of Geneva, Switzerland-based GSX Paticipations, a provider of end-user experience monitoring for Microsoft Office 365 through its Gizmo platform and with over 400 enterprise customers worldwide. The deal came with an aggregate purchase price of $18.4 million.
As well, Martello announced on May 26 the closing of a $6.9-million bought deal public offering.
Speaking to the two events, CEO and president John Proctor said in a press release, “As global businesses shift to a remote work model, the performance of cloud digital services like Microsoft Office 365 has become even more critical. I appreciate the vision of our lenders, who have recognized this significant opportunity and provided financing despite uncertain market conditions. As we begin the integration process, I’m pleased to welcome the GSX team to the Martello family.”
Also on June 1, management hosted a conference call to give additional colour on the GSX acquisition, saying that integration work has begun. On the call and the deal itself, Kwan said that with little customer overlap, there will be significant cross-selling and up-selling opportunities through GSX and that management indicated early customer and channel partner feedback has been positive.
In his update, Kwan judged the June 1 call event a positive for the company and stock.
“There is also some product integration work that is expected to be completed in three to six months. The key priority is integrating Gizmo into MTLO’s multi-tenant cloud SaaS environment that will help significantly expand GSX’s addressable market into the SMB space,” Kwan wrote.
The analyst also noted the recent move by Cisco to buy GSX competitor ThousandEyes, which for its last fiscal year saw total customer contractual commitments shoot up 80 per cent, with multi-year commitments representing over half of the company’s full year annual recurring revenue. Kwan also said that since the GSX was announced, MTLO has seen increased interest from vendors looking to white-label GSX’s Gizmo.
Overall, Kwan is leaving his forecasts unchanged, calling for fiscal 2020 revenue and adjusted EBITDA of $13.3 million and negative $3.1 million, respectively, and for fiscal 2021 revenue and adjusted EBITDA of $20.1 million and negative $1.7 million, respectively.
“At just 2.5x EV/Sales (CY21e) vs. the peer group at ~7x and the stock also trading below the low end of its historical range, we believe MTLO looks very attractive, especially with growth set to re-accelerate and an expedited timeline to positive adjusted EBITDA,” the analyst said.
With the update, Kwan is leaving unchanged his “Buy” rating and $0.45 target, which at press time represented a projected 12-month return of 104.5 per cent.
Year-to-date, MTLO is down 50 per cent.