Christian Sgro of Eight Capital is keeping a watchful eye on MediaValet (MediaValet Stock Quote, Chart, News TSXV:MVP), maintaining a “Buy” rating and target price of $3.50/share in an update to clients on Wednesday.
Founded as VRX Worldwide in 2014 and headquartered in Vancouver, MediaValet is a SaaS provider of digital asset management (DAM) solutions to mid to large enterprise customers globally. The company offers its Enterprise DAM platform to help create, find, work with, manage and share digital assets; a CreativeSPACES collaboration tool, the core DAM, and other media creation software; and other modules for advanced various intelligence development tools.
Sgro’s updated outlook comes after MediaValet announced a new $7 million revolving credit facility to improve the company’s financial position and flexibility, which Sgro sees as a de-risking event for MediaValet.
“As MediaValet expands penetration of a growing US$4B+ TAM in the DAM space (supported by recent customer wins and renewals), we are encouraged to see this announcement free up capacity to invest more heavily in sales headcount and other areas,” Sgro said.
Sgro notes that the debt facility comes as a positive surprise, as he had been expecting the company to receive a $5 million operating line to support its operations through the year. Company management also noted that the facility will grow in step with the company’s ARR, which Sgro projects to grow by 36 per cent in 2022.
“We are very pleased to be putting this credit facility in place and we’re grateful for the support TD has provided us since the early days of MediaValet,” said David MacLaren, Founder and CEO of MediaValet in the company’s January 18 press release. “We’ve invested heavily in our business in 2021, doubling our operational size, in order to lay the foundation for the next stage of our growth as we continue to execute on our mission to be the world’s leading enterprise DAM vendor – in an industry that’s expected to grow from US$4.3 billion this year to US$10 billion by 2026. We now have an operating line that will grow in step with our annual recurring revenue (ARR) and ensure we have ample growth funding for future years.”
MediaValet has also secured another part of its future, signing a $120,000 expansion with one of its largest customers in the media and entertainment space.
The company has also been busy from the executive viewpoint, having appointed David Miller as its new Chief Financial Officer. Mr. Miller brings 20 years of tech-focused financial leadership, including recently serving as CFO of VueReal and previously a finance leader at Sandvine Corp.
The move also allows Rob Chase, the company’s Executive Chair, to put a greater focus on strategy and corporate development.
Sgro has kept his financial projections intact, as he expects the company to reach $9.3 million in revenue for its 2021 year-end to give a year-over-year increase of 25 per cent, with an expectation of further growth to a projected $13.1 million in 2022, an implied 41 per cent year-over-year increase.
“We are cautious on the potential for spend to increase with the credit facility, although we expect that this would reflect management’s view that the demand environment is stronger than expected,” Sgro said.
By contrast, Sgro continues to project losses in adjusted EBITDA, with his 2021 projection of an $8.1 million loss implying a negative margin of 87 per cent, followed by a slight improvement to $7.6 million loss with an implied margin of 58 per cent in 2022.
From a valuation standpoint, Sgro forecasts the company’s EV/Revenue multiple to drop from the reported 9.2x in 2020 to a projected 7.4x in 2021, then to 5.2x in 2022.
The company closed its third quarter of the 2021 fiscal year with $8.4 million in net cash, with Sgro estimating an additional $5.7 million from the sale of FD Instruments.
MediaValet’s shares trade at 5.2x the 2022E EV/revenue valuation target, with Sgro’s valuation being based on a 10.5x target.
“Despite recent weakness in growth equities, our target remains a discount to peers at 12.3x accounting for MVP’s smaller size and lighter liquidity,” Sgro said. “With that said, we remain confident in the stock’s ability to re-rate higher as the company delivers on an estimated 41 per cent growth in 2022E, a premium to peers on average, and now has the balance sheet flexibility to invest more aggressively in growth.”
MediaValet has seen a drop in its shares on the market, producing a 24 per cent loss in its value over the last 12 months, though it has grown by 1.4 per cent since January 1. MediaValet’s high point over the last year was $3.20/share on February 16, then dipping to a 52-week low of $1.82/share on August 17. At press time, Sgro’s retained $3.50 target price represented an implied one-year return of 74 per cent.