It’s been an interesting year in Canadian tech so far, with some clear winners and losers and a lot in between, and after a prolonged drought, 2021 has brought forth a wave of new tech IPOs with even more expected over the fourth quarter. And while buying into a newly minted name has its attractions, there’s something to be said for letting a company find its feet a bit before investing. To that end, Cantech has three Canadian software stocks that have some longevity to them yet still hold a lot of promise according to analysts’ opinions.
We start with Voxtur Analytics (Voxtur Analytics Stock Quote, Charts, News, Analysts, Financials TSXV:VXTR), a data analytics software company with offerings for the tax, property valuation and settlement services domains. The company has grown by leaps and bounds over the past year both organically and through acquisitions, showing a 300-per-cent revenue growth rate in its latest reported quarter where revenue hit $18 million. One major piece of the puzzle is Anow, acquired in April, which has added an AI-enabled valuation platform to Voxtur’s toolbox of SaaS offerings.
Eight Capital analyst Christian Sgro is bullish on the name, saying that the Anow platform will drive meaningful growth for Voxtur into 2022 as the company picks up more customer wins. And the stock should respond in kind.
“Voxtur currently trades at 3.4x 2022E EV/revenue compared to real estate technology peers at 6.5x. Our target is based on 6.0x. We believe an expanding SaaS mix and continued execution will drive share price appreciation,” Sgro wrote in an October 20 report to clients.
Voxtur’s share price has had a tremendous run over the past 12 months, with the stock returning about 135 per cent over that period. But there’s more where that came from, according to Sgro, who in his report maintained a “Buy” rating and $1.50 target, which at press time represented a projected one-year return of 60 per cent.
Next up is Sylogist (Sylogist Stock Quote, Charts, News, Analysts, Financials TSX:SYZ), an enterprise resource planning software company for nonprofits and the public sector. The company has had quite an up-and-down year in 2021, starting with a strategic review and a bunch of changes at the executive level including the appointment of a new CEO. The stock has been active as well, rising from about $12.00 to as high as $18.00 by April before hitting the skids and dropping as low as $10.00.
SYZ has picked it up a bit over the past couple of weeks, but there should be better times ahead for Sylogist shareholders, according to Echelon Capital Markets analyst Amr Ezzat, who thinks recent acquisitions have accelerated the growth profile for the company.
“From an investor’s perspective, we believe the management team and BOD refresh is the stepping stone needed to rejig the business model after years of stagnation,” Ezzat wrote in an October 19 update. “We believe using multiples on short-term estimates significantly (and incorrectly) undervalues SYZ shares as they give no recognition to the Company’s evolving growth profile.”
“We expect the Company’s evolving growth profile and M&A to act as key catalysts in driving valuation. We believe the Company’s scope of potential acquisitions extends from technology-focused to client- focused tuck-ins. Despite best-in-class margins and a high proportion of recurring revenues, SYZ trades at an ~35 per cent discount to the high-visibility Canadian tech companies peer group on an NTM sales basis, an unwarranted discount in our opinion,” he said.
With the update, Ezzat reiterated his “Buy” rating and $19.00 target for SYZ, which at press time represented a projected return of 86 per cent.
Converge Technology Solutions (Converge Technology Solutions Stock Quote, Charts, News, Analysts, Financials TSX:CTS) which has already handsomely rewarded early investors to the IT services provider. By now, the stock is well known, as it went from about $1.20 in the spring of 2020 to now around $12.00, and the company has picked up steam as its M&A strategy continues to deliver the hits in the value added reseller (VAR) and original equipment manufacturer (OEM) spaces.
Writing about Converge in an October 7 report to clients, Desjardins analyst Kevin Krishnaratne said while the company’s business could experience some softness over the second half of the year due to the ongoing global chip shortage, he sees Converge as well-positioned to outperform over the longer term as the company further develops its higher-growth and recurring revenue chops in the cloud and software solutions sides of its business.
With his update, Krishnaratne maintained his “Buy” rating and $13.75 target price, which represented at the time of publication a projected 12-month return of 47 per cent.
“Our C$13.75 target reflects a multiple of 15.5x (was 14.0x) 2022 EBITDA, in line with peers. Looking at this another way, using our previous 14.0x multiple derives a target of C$12.50. If Converge were to deploy C$300m in M&A (it has access to C$350 million of liquidity) at 7.5x EBITDA, it would add ~C$1.25 to arrive at our C$13.75 target. Synergies (moving margin to 6 per cent from 3 per cent) would add further upside (incremental ~C$2.50). We remain very bullish on Converge’s hybrid IT roll-up strategy,” he said.