After third quarter results from Sabio (Sabio Stock Quote, Chart, News, Analysts, Financials TSXV:SBIO), Gabriel Leung of Beacon Securities maintained a “Buy” rating but raised his target price to C$3.25/share from C$3.00 for a projected return of 91 per cent in an update to clients on Tuesday.
Originally founded in 2015 as Spirit Banner II Capital Corp. and headquartered in Los Angeles, Sabio provides digital advertising campaigns and services as well as rich analytics for brand marketers and agencies with a particular focus on the Connected TV (CTV) market.
Leung’s updated analysis comes after Sabio’s Q3 2021 results which Leung judged to be ahead of expectations.
“We believe Sabio’s unique platform, which combines mobile and CTV data to provide brands with more effective ad campaigns could enable it to report superior growth rates relative to the peer group over the near-to-mid-term,” Leung said. “We believe Q3 results provide a strong data point supporting our view.”
Sabio’s quarter was headlined by $6.8 million in revenue (all report figures in US dollars except where noted otherwise), marking sequential growth of 61.3 per cent and a year-over-year increase of 112 per cent, as well as beating the Beacon estimate of $5.5 million.
Approximately 57.9 per cent of the company’s revenue mix came from mobile ad campaigns (47 per cent sequential growth, 38 per cent year-over-year increase), with CTV taking a greater share of the mix at 42 per cent (87 per cent sequential growth, 713 per cent year-over-year increase).
The company’s EBITDA also came in ahead of expectations at a 9.9 per cent margin ($673,000), beating the Beacon estimate of a 3.9 per cent margin ($214,000). That represented a nearly 2,400 per cent sequential jump but was down on a year-over-year basis in relation to both the margin (24.8 per cent) and real dollars ($797,000).
Sabio’s gross margin percentage came in at 60.8 per cent ($4.14 million), down from the 61.9 per cent ($2.62 million) reported in the previous quarter, and the 63.8 per cent ($2.05 million) reported in the same quarter of 2020.
“2021 has been a pivotal year for Sabio. We have achieved record revenues, driven by rapid market adoption of our industry leading CTV solutions. We have begun to make considerable investments into our sales and support infrastructure, which will allow us to continue to provide exceptional service to our existing client relationships while seizing the funnel of new opportunities ahead of us,” said Aziz Rahimtoola, Sabio’s Chief Executive Officer in the company’s November 29 press release. “We believe we are in a unique position to further capitalize on the thriving Connected TV market, and we expect our sales momentum to continue for the remainder of this year and into 2022.”
Leung projects solid growth for Sabio across the board in his forecasts, beginning with a revenue projection of $22 million in 2021 for potential year-over-year growth of 66.7 per cent, followed by a jump to $30 million in 2022, marking a potential year-over-year increase of 36.4 per cent.
Due in part to the process of becoming a publicly traded company, Leung forecasts Sabio’s EBITDA dipping from the reported $1.7 million (12.9 per cent margin) in 2020 to a projected $1.4 million (6.4 per cent margin) in 2021, with a slight increase to a projected $2.1 million (seven per cent margin) in 2022.
With Leung modelling the gross margin at 60 per cent moving forward, his real number projections increase from $7.9 million in 2020 to a projected $13.3 million in 2021, and a projected $18 million in 2022.
From a valuation perspective, Leung models the EV/gross profit multiple as a better proxy to Sabio’s North American peer group; in that regard, Leung projects a drop from the 8.1x reported in 2020 to a forecasted 4.8x in 2021 then to a projected 3.6x in 2022. Meanwhile, the EV/EBITDA multiple is forecasted to increase from the reported 38.4x in 2020 to 46.8x in 2021, then falling to 30x in 2022.
Leung’s updated target is based on 7x Sabio’s 2022 calendar year gross profit compared to 9x for its peer group. Overall, Leung believes further target upside could come from faster-than-expected growth, acquisitions and traction with its App Science SaaS platform, which is in the early stages of monetization.
“While the company did not provide specific guidance, it did indicate that it has not experienced any material deterioration in its growth trends and expects momentum of its revenue expansion to continue into 2022,” Leung said. “We believe this could translate into growth in Q4 2021 and 2022 over and above our previously published estimates.”
Sabio began trading on the TSX Venture Exchange last Friday at $1.70/share and has risen by 5.9 per cent since then.
Disclosure: Sabio is an annual sponsor of Cantech Letter.