Quisitive Technology has a 193 per cent upside, says Echelon Capital

Echelon Capital Markets analyst Rob Goff has no quarrel with Quisitive Technology Solutions Inc. (Quisitive Technology Solutions Stock Quote, Chart, News, Analysts, Financials TSXV:QUIS), maintaining a “Speculative Buy” rating and $2.75/share target price for a projected return of 192.6 per cent in an update to clients on Monday.

Founded in 2011 and headquartered in Toronto, Quisitive Technology Solutions offers Microsoft cloud solutions, including Microsoft Azure, Microsoft Dynamics business applications and Office 365 to clients across North America, retaining a National Solution Provider status.

Goff’s analysis comes after a positive read-through of Microsoft’s latest earnings results, particularly as it relates to the company’s cloud and Azure service revenue, which is a positive sign for companies like Quisitive.

“We look for organic revenue growth to exceed expectations while QUIS adds shareholder value through accretive acquisitions,” Goff said. “Expectations for a transformative 2022 are led by LedgerPay commercialization, the integration of Catapult, and organic growth of IT Services and BankCard.”

Microsoft’s cloud revenue reported a 32 per cent year-over-year increase in the quarter, while Azure revenue came in at a 46 per cent year-over-year increase, which Goff believes is a positive for Quisitive given its close relationship with Microsoft.

Looking ahead, Goff remains bullish on Quisitive thanks to accretive ISO acquisitions, where the migration of ISO merchants onto the LedgerPay platform has the potential to reduce pro forma valuations by three to five turns.

“IT Services-related acquisitions are expected to add revenue synergies in addition to scale efficiencies where the addition of Catapult brings scale efficiencies, and greater cross-selling revenue synergies leveraging its service capabilities including security applications,” Goff said.

The most recent example for Quisitive came in November, when it acquired Catapult Systems, a Microsoft-focused digital solutions and services provider based in Austin, Texas, with ten Microsoft Advanced Specializations and multiple Microsoft Partner of the Year awards.

For Quisitive, the acquisition is intended to increase scale in the company’s Cloud Solutions segment through expanded capabilities, including a robust Managed Services offering, net new Security & Compliance practice, and added capacity in the Digital Workplace segment.

Goff projects significant growth in the immediate future for Quisitive, forecasting $93.9 million in revenue (all report figures in US dollars) in 2021, suggesting year-over-year growth of 88.7 per cent. From there, Goff projects a near doubling in 2022, with the $184.3 million implying year-over-year growth of 96.3 per cent. After that, the growth rate tapers off to between 15 and 18 per cent every year from 2023 to 2026, with Goff calling for $341.7 million in revenue.

Goff’s projection for 2021 comes in slightly behind the consensus estimate of $95.1 million, though his estimations outpace the consensus views from 2022 onward. Meanwhile, Goff’s EV/Revenue multiple forecasts a drop from 6.8x in 2020 to a projected 3.6x in 2021, then halved to a projected 1.8x in 2022.

Meanwhile, Goff sees the company’s adjusted EBITDA margin staying relatively flat, dipping from 16.9 per cent in 2020 ($8.4 million) to 15.9 per cent in 2021 ($14.9 million) before a rebound to 16.4 per cent ($30.2 million) in 2022, with the margin projected to stay within a tenth of a per cent through 2026.

After being roughly in line on the 2021 projection, Goff’s adjusted estimates come in a bit below the consensus estimates from 2022 (18.4 per cent $33 million) onward. However, Goff’s EV/EBITDA multiple projections still show positively for Quisitive, as he projects a decrease from 40.4x in 2020 to a projected 22.8x in 2021, then dropping again to a projected 11.2x in 2022.

Quisitive’s stock has been relatively quiet this past year, posting a 6.9 per cent loss over the last 12 months, though it has dropped by 20.3 per cent since 2022 began. Quisitive’s 52-week high came on May 5 at $1.97/share, but it dropped off to a 52-week low of $0.90/share on December 2.

Quisitive Technology Solutions began 2022 by hiring Jana Schmidt, the former President and CEO of Vericast division Harland Clarke who over 20 years of payments and consumer engagement experience in senior management positions, as the company’s new President of Global Payments Solutions, where she will be responsible for aligning the Company’s strategic initiatives of full LedgerPay commercialization, managing BankCard USA, and building out the growing merchant services group.

“[Schmidt] has demonstrated her ability to spearhead successful go-to-market initiatives and to execute growth strategies from her previous tenure, and we are confident she’ll be able to translate that to our organization,” said Mike Reinhart, CEO of Quisitive, in the company’s January 6 press release. “As we enter the new year on the cusp of LedgerPay commercialization, Jana will play an integral role in ensuring the completion of our transformational solution, in conjunction with scaling our Sales and Marketing strategy and leading our broader global payments division. We warmly welcome Jana and look forward to the impact she will be making.”