Underlying fundamentals continue to improve for AcuityAds (AcuityAds Stock Quote, Chart, News TSX:AT), says Haywood Capital Markets analyst Neal Gilmer, who delivered an update to clients on the company on Monday.
AcuityAds, a digital advertising solutions business with a programmatic marketing platform involving proprietary machine learning technology allowing advertisers to target and connect with their audiences, announced on Friday the closing of a previously announced bought deal offering of 3.28 million common shares at a price of $6.10 per share for total gross proceeds of approximately $23 million.
Of the shares sold, 1.968 million were issued and sold by AcuityAds and the remainder were sold by existing shareholders, leading to about $11.3 million for the company and $10.3 million to the selling shareholders. The selling shareholders were two corporations, one of which is owned by co-founders in senior management and the other by the Chairman of the Board. Prior to the transaction, the two insider corporations controlled 7.27 per cent of share outstanding. The company said the net proceeds will be used to fund its growth strategy including future acquisitions and general corporate purposes.
After an initial downturn in step with the wider market pullback in February and March, AcuityAds has powered up the charts in 2020, currently sitting at plus 293 per cent for the year.
But Gilmer thinks there’s more upside to come. With the update, the analyst reaffirmed his “Buy” rating with a “Very High” risk factor and now target price of $10.00 (previously $8.00), which at press time represented a projected 12-month return of 23 per cent.
Gilmer said the new funds will give increased balance sheet flexibility for Acuity as it looks to expand its business and drive growth supported by its recently launched illumin ad platform.
“The improving market dynamics as well as a compelling value proposition to the new self-service platform positions the company well heading into 2021,” wrote Gilmer.
“In an increasingly digital world, advertisers are under strong pressure to spend marketing dollars more efficiently and receive measurable results,” Gilmer said. “WHile the market was disrupted by the pandemic, we expect the rebound to continue into Q4 and 2021. We believe the new self-serve platform Acuity has developed and expects to deploy later this year should generate interest that drives revenue and growth in this segment.”
Gilmer said on a pro-forma basis after the offering and as of September 30, 2020, Acuity had $20.6 million in cash and $12.3 million in debt of which $4.0 million is due in the next 12 months.
Looking ahead, Gilmer thinks AcuityAds will generate full 2020 revenue and adjusted EBITDA of $104.3 million and $14.1 million, respectively, and 2021 revenue and adjusted EBITDA of $136.3 million and $21.7 million, respectively.
Gilmer noted that the company’s four key founders and senior management own about 35 per cent of the company’s shares, leading the entrepreneurial management team to be aligned with investors.
“Management has targeted improvements in its cost structure both before and during the pandemic that should lead to improved profitability. As revenue growth returns following the pandemic, Acuity is well-positioned to generate increasing cash flows,” Gilmer said.
The analyst values AT using a 3.5x EV/Revenue multiple on his 2022 EBITDA estimate, discounted by ten per cent. Gilmer sees AcuityAds to be currently trading at 3.0x EV/Revenue for his 2022 estimates compared to its selected peers’ company average at 7.5x, excluding high/low values.
AcuityAds launched its illumin platform on October 1 of this year, saying it enables planning, buying and omnichannel intelligence in a single platform and represents Acuity’s first standalone brand coming out of the company’s ecosystem following over $100 million invested in the brand’s technology.
Acuity said illumin allows ease of use for all types of users to execute their advertising campaigns.
“Following our successful beta program, we are incredibly excited to launch the illumin brand and make this revolutionary platform accessible for advertisers of all sizes,” said Tal Hayek, Co-Founder and CEO, in a press release. “illumin is the culmination of years of development and time spent envisioning a better programmatic system that enables advertisers to create highly customizable consumer journeys that increase efficiency and return on advertising investments.”
Last month, AcuityAds announced its third quarter 2020 financials which featured total revenue of $26.1 million, down three per cent year-over-year but up 33 per cent sequentially. adjusted EBITDA was up 150 per cent year-over-year to $4.0 million and up 115 per cent to $8.0 million over the past nine months ended September 30.
The company said the quarter saw a “substantial decline in spend from its travel and hospitality clients due to COVID-19 but the drop was largely offset by growth in its direct-to-consumer and e-commerce clients. Acuity said its Total Connected TV segment revenue grew by 353 per cent year-over-year over the Q3 while its Total Self-Serve segment was $7.3 million compared to $6.7 million a year earlier.