Echelon Capital Markets analyst Amr Ezzat gave a target raise and assigned his Top Pick status to mdf commerce (mdf commerce Stock Quote, Chart, News TSX:MDF) in an update to clients on Monday, saying the e-commerce solutions company is a misunderstood and under-appreciated story in the tech space.
Formerly Mediagrif Interactive, mdf commerce completed its name change last month as part of a multi-year transformation into a cloud- and SaaS-based business focused on optimizing e-commerce interactions between buyers and sellers.
Ezzat thinks the evolution has been a good one for mdf.
“We have long argued that the divestment of the Company’s consumer platforms would improve business sustainability, shifting the focus away from a more competitive and less predictable segment to one with: (i) high visibility and (ii) healthy growth, both of which warrant a multiple re-rating,” Ezzat wrote.
“This process was admittedly longer (and more painful) than we had anticipated, but with the transformation now in the rear-view mirror, and more visibility provided on a segmented basis, we are introducing a formal sum- of-the-parts (“SOTP”) valuation, and revising our target price,” he said.
As a sign of the change in direction, Ezzat pointed out that three years ago, about 30 per cent of MDF’s revenues were driven by consumer marketplace platforms and no revenue came from e-commerce, while today, about 30 per cent of revenues come from e-commerce and less than four per cent from consumer platforms.
Ezzat said that taking the consumer segment out of the equation, MDF’s recent performance has come at a CAGR of 7.6 per cent, with the analyst now expecting continued momentum going forward as the company on-boards more major clients.
“With an ability to segment the Company’s revenues into verticals since last quarter, the valuation disconnect relative to peers and precedent transactions is becoming more evident,” Ezzat said.
“We continue to push MDF as a high-conviction investment idea as reflected by our off-consensus estimates and target price. Namely, our sales/EBITDA for F2021 are 3.6 per cent/37.6 per cent higher than Street and for F2022 we are 4.9 per cent/23.3 per cent higher. The shares currently trade at 1.9x our F2021 sales, a significant (and unjustified) discount to comparable companies. Notably, high visibility Canadian tech peers trade at a median 6.5x sales,” he wrote.
With the update, Ezzat is maintaining his “Buy” rating and bumping his target price from $11.00 to $15.00 per share, which at press time represented a projected 12-month return of 65.2 per cent.
The analyst expects MDF to generate fiscal 2021 (year end March 31) revenue and adjusted EBITDA of $84.6 million and $9.8 million, respectively, and fiscal 2022 revenue and adjusted EBITDA of $93.0 million and $12.7 million, respectively.
MDF last reported its earnings on August 12 where the company’s fiscal first quarter featured revenue up 8.4 per cent sequentially to $20.5 million and a net loss of $1.2 million or $0.08 per share compared to a net profit of $1.1 million or $0.07 per share a year earlier.