Wishpond has a 54% upside, Beacon Securities says

There’s no rest for the ambitious and that includes Wishpond Technologies (Wishpond Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:WISH), says Beacon Securities analyst Gabriel Leung, who reviewed the company’s latest acquisition in a client update on Wednesday.

SaaS-based marketing solutions company Wishpond Technologies on Tuesday announced an arm’s length letter of intent to buy San Mateo, California-based PersistIQ, a sales engagement technology company whose software helps shorten the sales cycle, enables enterprises to personalize each campaign and makes sales teams more effective by allowing them to launch personalized campaigns quickly. The company has a current customer base of about 780 small-to-medium-sized businesses and had about US$1.1 million in revenues in 2020 with EBITDA margins of 20 per cent.

Wishpond said acquiring PersistIQ will expand its capabilities in the sales automation and communication space and thereby create cross-selling opportunities and open new customer segments for Wishpond. The deal is pegged at about US$3.0 million consisting of US$1.0 million in cash, US$1 million in Wishpond shares and a one-year earn-out of about US$1.0 million based on the projected revenue of the business.

“We are very excited about the technology that PersistIQ has developed and believe that it will help to build on the marketing products and services already provided by Wishpond,” said Ali Tajskandar, Wishpond’s Chairman and CEO, in a press release. “This acquisition is another step towards our objective of acquiring additional sales and marketing technology and services companies in North America to accelerate Wishpond’s growth.”

It’s the second acquisition for Wishpond, which made its TSX Venture debut just last month and closed last week on the acquisition of BC-based Invigo Media, a SaaS-based digital marketing services company to the medical and related fields. That deal was for about $3 million and netted Wishpond a business which over the past six months had an annualized run-rate of about $2.7 million and EBITDA margins over 20 per cent.

Wishpond’s share price has easily more than doubled since starting trading on December 11, 2020.

On the PersistIQ deal, Leung said, “From a valuation standpoint, Wishpond paid 2.7x sales and 13.6x EBITDA, which we view as reasonable given that PersistIQ is a pure SaaS technology play.”

“Similar to the Invigo acquisition, we expect PersistIQ to be immediately accretive to Wishpond and to offer good cross-selling opportunities,” he wrote.

Leung now estimates Wishpond’s pro-forma cash position at about $3.4 million. The analyst has estimated the close of the PersistIQ deal as coming at the end of February and, being conservative, that revenue growth will be flat for PersistIQ.

The result has Leung maintaining his “Buy” rating and $3.00 price target for WISH, which at the time of publication represented a projected one-year return of 54 per cent.

Looking ahead, Leung thinks Wishpond will generate fiscal 2020 revenue and EBITDA of $7.8 million and $0.4 million, respectively, fiscal 2021 revenue and EBITDA of $13.9 million and $1.3 million, respectively, and fiscal 2022 revenue and EBITDA of $17.6 million and $2.1 million, respectively.

The analyst estimated WISH’s 2021 EV/Sales at a 6.6x multiple and the EV/EBITDA at a 69.3x multiple and WISH’s 2022 EV/Sales at a 5.2x multiple and the EV/EBITDA at 44.0x. His current price target stems from valuing WISH at 8x 2022 EV/Sales.

Wishpond delivered its third quarter financials in mid-December for the period ended September 30, where the company hit record quarterly revenue of $2.1 million, up 39 per cent year-over-year, and adjusted EBITDA of 4175,653 compared to $116,495 a year earlier. Wishpond achieved positive cash from operations of $286,152 and ended the quarter with $1.3 million in cash.

Subsequent to the quarter’s end, Wishpond closed on a private placement for proceeds of $4.6 million, which was upsized from the original $3.0 million, and then at the end of November the company converted debt of about $4.65 million into common shares, taking all debt from its balance sheet. It was then on December 8 that Wishpond completed its qualifying transaction via reverse takeover of Antera Subco.

In the quarterly press release, Tajskander said the private financing for $4.6 million will go towards accelerating Wishpond’s organic and inorganic growth.

“This 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,” Tajskander wrote.

Wishpond also described in the Q3 report its priorities going forward, which are: achieving organic growth from operations, accelerating the company’s product development efforts and “growth through acquisition of highly promising technology and marketing agency partners through a disciplined capital allocation strategy.”

Wishpond is an annual sponsor of Cantech Letter.