National Bank Financial raises price target on Lightspeed to (US) $70.00

Montreal-based Lightspeed, which has an end-to-end, cloud-based point of sale system for retailers and restaurants, announced on Tuesday the acquisition of Rhode Island-based restaurant management software company Upserve for approximately $430 million, consisting of $123 million in net cash and up to 5.9 million subordinate voting shares, subject to post-closing adjustments. (All figures in US dollars.)

The news comes quickly on the heels of LSPD’s closing of the acquisition of commerce platform ShopKeep for $145.2 million in cash and about 7.4 million shares for a total of about $440 million.

On the new purchase, Lightspeed said merging with Upserve will bring the company’s position in the US hospitality market by an added 7,000 customer locations.

“Combining forces with Upserve is a strategic next-step in Lightspeed’s vision of providing the most advanced commerce platform to high-performing businesses around the world,” said Lightspeed CEO Dax Dasilva in a press release. “We believe this acquisition will accelerate the product innovation that has enabled Lightspeed customers to tackle the greatest challenge to their industry in decades and will add exceptional leadership to our teams in anticipation of the economic recovery of the global hospitality industry.”

Lightspeed’s share price has vaulted ahead over the past month, now up a full 81 per cent since the start of November. Lightspeed, which debuted as a public company in March, 2019, is currently up 108 per cent for 2020.

On the Upserve deal, Tse said that based on the company’s last 12 months of revenue ($40 million), the implied Enterprise Value/Sales multiple is 10.8x, which the analyst said was reasonable given the potential strategic value and relative valuation.

“While Upserve’s current merchants are already well-penetrated in terms of Upserve’s own payment solution, the conversion is expected to drive upside given Lightspeed Payment’s higher take rate relative to Upserve’s existing contractual relationships,” Tse wrote.

“Additionally, it appears Upserve also brings some considerable analytic capabilities targeted at complex restaurants. It’s those capabilities that likely allows the Company to charge a premium price resulting in an estimated ARPU of ~$500 per merchant, above Lightspeed’s current average of ~$175. In our view, the latter of the above has the potential to carry through to Lightspeed’s existing merchant base, and potentially pulling up ARPU across that group,” Tse said.

Looking ahead, the analyst is estimating LSPD will generate fiscal 2021 (year end March 31) revenue and adjusted EBITDA of $206.2 million and negative $29.9 million, respectively, and fiscal 2022 revenue and adjusted EBITDA of $319.8 million and negative $48.7 million, respectively.

Tse said the bottom line is that LSPD is just getting started.

“Going back to when we initiated coverage on LSPD last year, our thesis has always been that this is a land grab story where a disruptive player with the most scale would stand to carve out a leading position in the market. It’s our view that Lightspeed continues to do that with a combination of organic and acquisition measures,” Tse said.

“In our view, the Upserve acquisition is another example of that and consistent with the opportunity we laid out in our note last week, following investor meetings with Management,” he said.

With the update, Tse has maintained his “Outperform” rating but increased his target price from (US) $60.00 to $70.00, which at press time represented a projected 12-month return of 33 per cent.

Lightspeed last reported its financials in early November where its fiscal second quarter 2021 saw revenue grow 62 per cent year-over-year to $45.5 million and adjusted EBITDA move from negative $5.1 million to negative $2.8 million. Lightspeed said its Software and Payments segment revenue grew by 62 per cent year-over-year to $41.1 million, with recent acquisitions Gastrofix and Kounta contributing for the first time to the quarterly results. The company said its customer base passed the 80,000 location mark, saying that gross new customer location adds were68 per cent higher than a year earlier and 26 per cent higher than the previous quarter.

The company said that even as COVID-19 has presented challenges to the small and medium-sized businesses in LSPD’s purview, the company’s platform has helped these businesses to effectively navigate through the rough waters.

“Lightspeed’s customers were able to accelerate gross transaction volume growth to 56 per cent year-over-year, driven in part by higher eCommerce volumes, the acquisition of Kounta and Gastrofix and strong seasonal performance in verticals such as bike and golf. Increased demand for our omni-channel commerce platform grew customer locations to over 80,000 by the end of September, helping to generate another record quarter of volumes processed by Lightspeed Payments,” the company said in the quarterly press release.