Canaccord Genuity analyst Aravinda Galappatthige sees further upside to early riser EMERGE Commerce (EMERGE Commerce Stock Quote, Charts, News, Analysts, Financials TSXV:ECOM), saying the year ahead will be telling for the company and stock. In a Flash Update to clients on Monday, Galappatthige retained his “Buy” rating and $1.20 target for ECOM, which at press time represented a projected one-year return of 37.9 per cent.
EMERGE Commerce, which acquires and integrates e-commerce businesses primarily in of the direct-to-consumer variety and has names in the grocery subscription, golf, family offers and nearby vacation verticals, has seen its share price shoot upwards over the past half-dozen trading days. The stock is up over 40 per cent during that time, helping to recover some of the ground lost in 2021 where ECOM dropped almost 46 per cent, going from $1.14 to $0.62 per share.
Galappatthige said he suspects the recent lift in share price relates to EMERGE’s announcement on Monday that Harish Consul, Founder and CEO of Ocgrow Ventures, has been added as a strategic advisor to EMERGE. Ocgrow Group is a Calgary-based private investment firm focused on venture capital and real estate development, with Ocgrow Ventures being its venture capital arm.
“Despite a weakening seen in small cap growth names as of late, EMERGE is up 40 per cent since the beginning of the year, with traded volume today eclipsing 1.2 million shares. While we cannot be certain, we suspect this could be due to positive sentiment surrounding Mr. Consul joining in his strategic advisory role and Ocgrow Ventures likely taking an equity position in EMERGE,” Galappatthige wrote.
Ocgrow Ventures has a tech leaning, as it invests in both private and early-stage public companies in the e-commerce, cloud, SaaS, healthcare and fintech fields. Galappatthige said the firm has historically used its expertise and experience in taking an active role to guide and grow businesses. For instance, Ocgrow participated in an $83-million funding round for solar startup Heliogen, backed by Bill Gates, which went public last year through a $2-billion SPAC deal and last year Ocgrow participated in a $250-million funding round for Miami-based fintech company Pipe and in a $54-million funding round for Washington-based biotech company Viome Life Sciences.
Commenting on Consul’s new role with EMERGE, EMERGE founder and CEO Ghassan Halazon said his company is fortunate to have Consul join as a strategic advisor.
“From the moment we met, it was crystal clear that we shared the same values, and he has a deep understanding of what it takes to win big. Harish has a refreshingly long-term perspective on building iconic businesses that stand the test of time, offering very patient capital and support. We could not be more thrilled to partner with him on this journey,” said Halazon in a press release.
For his part, this is what Consul had to say about EMERGE: “With our experience in investing and scaling high growth companies from an early stage with founder-led businesses, including those such as Amazon, Shopify and Coupang, I see tremendous growth potential with EMERGE. The business that Ghassan and his incredible team are building is uniquely positioned to become one of the leading e-commerce portfolios globally over time. I am thrilled to join as strategic advisor and will continue to support the company in various ways through its next phase of growth and beyond,” Consul said in the press release.
Galappatthige said due to the relatively short earnings history of EMERGE (the company completed an RTO and started trading on the TSX Venture in December 2020) a lot will depend on it achieving its financial expectations this year, in particular in terms of EBITDA heading toward $7 million.
“Given the earnings potential of the underlying assets, especially WSP, BattlBox and truLOCAL we believe this is very much in the cards. Reaching or surpassing expectations would in turn lift the premium offered to the stock for its consolidation strategy, essentially kicking off a virtuous cycle,” the analyst wrote.
“The stock currently trades at 17.2x 2022e and 12.4x 2023e EV/EBITDA, in line with the comp group and by no means inexpensive at an operating level, but carries upside as we consider future acquisitions and longer-term revenue and costs synergies from the current portfolio of assets,” Galappatthige said.
EMERGE Commerce last reported its financials in late November where the company posted third quarter revenue of $6.1 million, up 172 per cent year-over-year, and a negative adjusted EBITDA of $0.51 million. Since the end of the third quarter, EMERGE closed on two acquisitions in BattBox and WholesalePet.com, which together had revenue of over US$26 million and adjusted EBITDA of over $6 million prior to acquisition. In December, EMERGE reported hitting record gross merchandise sales of $10 million for the month of November.
Disclosure: EMERGE Commerce is an annual sponsor of Cantech Letter