Siyata Mobile is a buy, Maxim Group says

Maxim Group analyst Jack Vander Aarde is bullish on Siyata Mobile (Siyata Mobile Stock Quote, Chart, News, Analysts, Financials NASDAQ:SYTA) which just announced a new strategic acquisition. Vander Aarde launched coverage on Siyata on February 8 with a “Buy” rating and US$17.00 target price, saying the company is well positioned to take a share of the plus $20-billion push-to-talk over cellular (PoC) market.

Vancouver-headquartered Siyata Mobile, an enterprise communications company with a portfolio of in-vehicle devices, cellular signal boosters and rugged handsets, announced on Wednesday a share purchase agreement to acquire ClearRF, a Spokane, Washington-based company that produces machine-to-machine (M2M) cellular amplifiers for commercial and industrial applications. Siyata said the acquisition price is US$700,000 in a combination of cash and shares and is expected to close by the end of the month.

Siyata CEO Marc Seelenfreund said in a press release that ClearRF’s products and technology are a good fit for Siyata and its growing cellular booster business. On the acquisition, Seelenfreund said, “We believe it will enable us to accelerate the penetration of our M2M boosters and our flagship UV-350 in-vehicle IoT communication device, into the large scale in-vehicle modem market and provides us with access to new verticals and a key U.S. manufacturing partner.”

“ClearRF’s U.S. military certified manufacturing partner, Servatron, will also allow Siyata to enter the large-scale U.S. military and government markets that have special budgets for ‘Made in America’ products,” Seelenfreund said.

Siyata has had its ups and downs over the years. The company finished 2019 with revenue down eight per cent over the previous year, followed by rising revenue in more recent quarters on stronger sales for its Uniden UV350 PoC device. Last fall, Siyata held a successful IPO to begin trading on the NASDAQ, shortly after which it delisted from the TSX.

Vander Aarde said despite the challenging market environment, Siyata’s recent strategic developments and building momentum are encouraging, with the analyst predicting the pandemic-caused disruptions to Siyata’s core customers and end markets over the past year should dissipate over 2021.

“The momentum is unyielding despite the current environment, signalling an expected growth acceleration from key factors such as a growing sales team, unique partnership with AT&T’s FirstNet, and an increasing overall market awareness of PoC devices,” Vander Aarde wrote.

“In addition, as Siyata continues to execute on its strategic shift of product sales toward higher-margin North America market opportunities, we anticipate gross margin to significantly expand to ~40 per cent by 2023, up from ~32 per cent in 2020. In addition to geographical mix shifts, we also expect an increasing mix shift of higher-margin cellular boosters and UV350 product sales to bolster gross margin expansion,” he said.

Vander Aarde noted that the UV350 remains the first (in 2019) and only in-vehicle tablet that has been tested and approved by AT&T’s FirstNet network for first responders, while the company has an impressive roster of Tier 1 strategic partners including major North American cellular carriers and distributors. Siyata has plans to grow its UV350 sales pipeline to over $100 million annually, where it currently sits at over $31 million.

Siyata’s strategic partners have historically made up over 60 per cent of Siyata’s revenue and will likely play a critical role going forward, Vander Aarde said.

“On the sales and marketing front, Siyata remains in the early innings of ramping up its North America sales leaders that will focus on the largest carriers. Notably, Siyata hired a dedicated sales leader in 4Q20 to focus on cellular booster sales, after having hired a sales leader in 3Q20 to target Verizon opportunities and a sales leader in 1Q20 to target AT&T opportunities,” Vander Aarde wrote.

Vander Aarde pointed out a number of secular growth verticals in Siyata’s favour, starting with the US population of about 4.5 million PoC users, which is forecasted to grow to 7.5 million by 2023, representing a plus-13-per-cent CAGR. As well, there are about 20 million commercial vehicles in the US including 3.5 million first responder vehicles, representing a $20-billion total addressable market. Further, Vander Aarde said the global signal booster market is forecasted to hit $20 billion by 2026, and the $3.8-billion global rugged device market is another opportunity for SYTA.

As for valuation, the analyst sees Siyata to be currently trading at a significant discount to its peers, corresponding to multiples of 2.5x and 1.3x his 2021 and 2022 revenues estimates compared to its peer group at 5.7x and 4.6x, respectively. Vander Aarde argued that while a discounted multiple is reasonable in Siyata’s case given the company’s relatively smaller scale and current lack of operating profits, the runway ahead bears consideration, nonetheless.

“Based on our rapid growth outlook and our view of the company’s favourable strategic positioning within the industry, along with a relatively massive opportunity to capitalize on the U.S. first responder market’s product upgrade cycle for modernized in-vehicle PoC devices, we believe SYTA shares are currently undervalued,” Vander Aarde said.

The analyst is calling for SYTA to generate full 2020 revenue and adjusted EBITDA of $11.4 million and negative $4.2 million, respectively, 2021 revenue and EBITDA of $18.0 million and negative $3.8 million, respectively, and 2022 revenue and EBITDA of $35.0 million and $1.5 million, respectively. At press time, Vander Aarde’s US$17.00 target represented a projected one-year return of 58.7 per cent. (All figures in Canadian dollars except where noted otherwise.)