Beacon Securities analyst Gabriel Leung delivered an update to clients on Monday on e-commerce marketing company and Venture Exchange newcomer Wishpond Technologies (Wishpond Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:WISH). Leung raised his target on WISH, arguing that a new equity financing makes for a substantial M&A war chest.
Vancouver-based Wishpond is a SaaS-based provider of marketing-focused online business solutions with an all-in-one suite of services including marketing, promotion, lead generation and sales conversion capabilities. Along with software, Wishpond has managed marketing services to support companies’ design, launch and maintenance of digital marketing campaigns.
Since its debut on the junior board in December, Wishpond’s share price has gone from $0.75 to $2.18. The company announced on December 22 a purchase agreement to buy Invigo Group, a digital marketing company focused on the medical field, for a price of about $3 million including earnouts. (All figures in Canadian dollars except where noted otherwise.)
This past Friday, Wishpond closed on a previously-announced bought deal offering of 4.6 million shares at $1.75 per share for gross proceeds of $8.05 million including over-allotment. The company said it will use the net proceeds for strategic acquisitions, working capital and general corporate purposes.
Leung now estimates Wishpond’s pro-forma basic outstanding shares at about 50.7 million and pro-forma cash at $10.8 million.
Leung said with WISH already at break even to slightly cash flow positive, much of the new equity raise should go towards acquisitions.
“Recall that the company’s main M&A targets include technology companies that augment its current sales and marketing automation platform, along with marketing agencies that bring with it a large customers base into which Wishpond can upsell,” Leung wrote.
After completing the Invigo buy on January 8, Wishpond announced a letter of intent to acquire PersistIQ, a sales automation software company for an expected total purchase price of US$3 million consisting of US$1 million in cash, US$1 million in WISH shares and a one-year earnout of about US$1 million based on 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.”
Leung said Wishpond is trading at a “healthy discount” compared to its peers at 6x forward sales versus the peer group at over 10x. With the update, Leung is maintaining his “Buy” rating and raising his target price from $3.00 to $3.50, which comes from a 10x calendar 2022 EV/Sales estimate (up from 8x), which the analyst said brings WISH closer to its peer group. At the time of publication, the $3.50 target represented a projected one-year return of 61 per cent.
“Aside from valuation, we believe Wishpond remains a compelling investment opportunity given the positive secular growth trends underlying the e-commerce industry, the company’s strong organic growth trends (~organic sales growth north of 35 per cent year-over-year), cash flow positive operations, along with its strong M&A funnel,” Leung wrote.
Looking ahead, Leung thinks WISH will generate 2020 revenue and EBITDA of $7.8 million and $0.4 million, respectively, 2021 revenue and EBITDA of $13.9 million and $1.3 million, respectively, and 2022 revenue and EBITDA of $17.6 million and $2.1 million, respectively.
In July of last year, Wishpond announced a reverse takeover of capital pool company Anterra Ventures, a deal completed on December 8. The company came into December with over 2,000 customers, mostly in the small to medium-sized business (SMB) bracket across a variety of industries, and over 100 employees and contractors.
WISH delivered third quarter 2020 financials on December 16 where it posted revenue of $2.1 million compared to $1.5 million a year earlier and adjusted EBITDA of $175,653 compared to $116,495 a year earlier.
“The third Quarter 2020 was another outstanding record quarter as the Company experienced significant revenue growth compared to the third quarter last year and we exceeded $8.3 million on an annualized revenue run-rate basis,” said Tajskander in a press release. “In addition, we reported strong Gross margins, positive operating income, operating cash flows and Adjusted EBITDA, demonstrating our relentless focus on profitable growth.”
At the time of the Q3, management said its outlook on the fourth quarter “remained positive” and put its priorities going ahead as achieving organic growth from operations, accelerate product development and growth through acquisition through a disciplined capital allocation strategy.
On October 15, 2020, Wishpond completed a private placement financing for $4.6 million and converted debts of $4.65 million into Wishpond shares.
Disclosure: Wishpond is an annual sponsor of Cantech Letter.