Beacon Securities raises price target on Wishpond Technologies to $2.50

Vancouver-based e-commerce solutions company Wishpond Technologies (Wishpond Stock Quote, Chart, News TSXV:WISH) delivered a positive quarter, according to Beacon Securities analyst Gabriel Leung, who reviewed the results in an update to clients on Wednesday. Leung reiterated his “Buy” rating and lifted his target price from $2.25 to $2.50, saying the company is getting ready to finish the year off with a bang.

Wishpond Technologies, a SaaS-based provider of marketing-focused online business solutions including an “all-in-one” suite of products with marketing, promotion, lead generation and sales conversion capabilities, released its third quarter 2020 financials on Wednesday for the period ended September 30.

For the Q3, the company’s revenue increased by 38 per cent year-over-year to $2.1 million and adjusted EBITDA of $175,653 compared to $116,495 a year earlier. The company hit positive cash from operations of $286,152 versus negative $28,530 a year earlier and positive operating income of $54,785 versus a loss of $11,674 a year earlier.

The company had a number of moves over the quarter and since, including closing on a private placement for $4.6 million, the amalgamation of Wishpond PrivCo and Antera Subco to form Wishpond Holdings, completed on November 24, and its public listing on December 11 through a reverse takeover of Antera Venters and a related share consolidation.

Wishpond said its outlook for the fourth quarter remains positive, with steady revenue growth, while it listed its priorities for the future as achieving organic growth from operations, accelerating product development and growth through acquisition and a disciplined capital allocation strategy in the tech and marketing space.

“[The $4.6-million capital raise], in combination with the conversion of the shareholder loan to common shares, gives Wishpond a very robust balance sheet with a solid cash balance and virtually no long-term debt. As a result, Wishpond is extremely well positioned to execute on a pipeline of highly accretive acquisition opportunities in the coming months,” said Ali Tajskander, chairman and CEO, in a press release.

Leung said the third quarter results were better than expected, with the $2.1-million topline coming in ahead of his $1.8-million forecast and the $176k in EBITDA also beating his $53k estimate. The analyst noted that gross profit of $1.5 million (72.5 per cent gross margins) were up 41 per cent year-over-year, while Leung said gross margins should fall within the 65-70 per cent range depending on the mix of fully managed services, which are lower margin in nature. Leung said the company’s focus on adding to its sales support and managed services headcount could mean a quarter-on-quarter decline in gross margins for the upcoming Q4.

“In our opinion, the Q3 results, particularly the 38-per-cent year-over-year growth [in revenue] was a positive for the company highlighting strong macro tailwinds, along with the fruits of company’s internal sales and marketing and R&D initiatives,” Leung wrote.

“We have made some adjustments to our forward estimates, with the main assumptions being top-line growth of ~30 per cent for our forecast period (although this could prove to be conservative given the 38 per cent growth just reported), along with 6.2 per cent and 9.0 per cent EBITDA margins for CY21 and CY22. We believe the company is exploring accretive acquisition opportunities, which could drive upside to our estimates,” Leung said.

The analyst is now calling for 2020 revenue and EBITDA of $7.8 million and $0.4 million, respectively, for 2021 revenue and EBITDA of $10.1 million and $0.6 million, respectively, and for 2022 revenue and EBITDA of $13.2 million and $1.2 million, respectively.

At press time, the analyst’s new $2.50 target (which is based on a 8x multiple of his 2022 EV/Sales estimates) represented a projected 12-month return of 79 per cent.

“We view the stock as being very attractively priced given its current valuation of only 5.9x next fiscal year sales versus the peer group at 12.7x,” Leung said.

So far in its brief tenure, Wishpond’s share price has doubled since its IPO, closing Thursday at $1.50.

Wishpond currently has over 2,000 customers mostly in the small-to-medium sized business group, with the bulk of the company’s revenue coming from subscription-based recurring revenue. Wishpond says its marketing platform replaces entire marketing functions in an easy-to-use product at a fraction of the cost.

On the company’s public listing last week, CFO Juan Leal wrote, “Wishpond’s SaaS-based recurring business model provides excellent revenue and cash flow visibility with gross margins exceeding 65 per cent. The funds from the recently closed financing have strengthened the Company’s balance sheet, with over $5.5 million in cash and no debt. With over 2,000 customers, Wishpond has a solid track record and is well positioned to meet its growth objectives over the next year.”

Disclosure: Wishpond Technologies is an an annual sponsor of Cantech Letter