Sabio has a 185 per cent runway, says Beacon Securities

Beacon Securities analyst Gabriel Leung continues to like Canadian advertising tech company Sabio Holdings (Sabio Stock Quote, Charts, News, Analysts, Financials TSXV:SBIO), saying in a client update on Friday that a newly announced contract is another sign of Sabio’s moving up the value chain.

Sabio, which offers ad tech software and services to support advertisers and advertising agencies’ digital ad needs involving reach, targeting and analytics for mobile and connected TV (CTV), reported on Tuesday the signing of the largest contract in company history, representing a three-year expansion on an existing partnership with an undisclosed Fortune 50 client. Sabio said the contract is expected to generate over US$10 million in revenue over the three-year period. In the same announcement, Sabio also noted other recent annual and multi-year deals across Automotive, CPG and other verticals.

“These deals are the first of many multi-year and annual contract discussions that are taking place as part of our strategy to further cement ongoing partnerships with key long-term customers. We are now at the stage of our business where we are seeing increased interest by the top brands in committing to more annual and multi-year deals, a testament to their trust in Sabio and our mobile mindset approach to streaming TV, and mobile cross screen advertising”, said Aziz Rahimtoola, CEO of Sabio Holdings, in a press release.

Sabio says its products fit well with the overall demographic shift from traditional to streaming TV and that the company is pleased with the market traction being gained by its new analytics platform AppScience.

“[AppScience] is now an increasing feature within customer contracts, as we continue to validate its unique-value proposition,” said Sabio Chief Growth Officer Jon Stimmel in the press release.

For his part, Leung said he spoke with management and the new contract with the Fortune 50 brand is a meaningful increase on that customer’s previous commitments and it includes streaming TV and mobile cross screen advertising.

“Aside from the size of the contract itself, we believe this announcement highlights the trust that Sabio is developing with brands/agencies, which is translating into clients committing to more annual and multi-year deals in an industry which is typically characterized by more one-off, campaign-driven commitments,” Leung wrote.

“In our opinion, this is a testament to the strong ROI that Sabio is driving for its clients, which we believe could enable it to outperform its peers in terms of overall growth,” he said.

Leung said the next catalysts for Sabio will likely be the close of the Vidillion acquisition, first announced in February, along with its fourth quarter 2021 financial results.

With his update, Leung reiterated his “Buy” recommendation on Sabio Holdings and $3.25 target price, which at press time represented a projected one-year return of 185 per cent.

By the numbers, Leung thinks Sabio will generate full 2021 revenue, gross profit and EBITDA of $22.0 million, $13.3 million and $1.4 million, respectively, and 2022 revenue, gross profit and EBITDA of $30.0 million, $18.0 million and $2.1 million, respectively.

On valuation, Leung sees SBIO’s EV/Gross Profit going from 5.5x in 2020 to 3.3x in 2021 and to 2.4x in 2022, while the company’s EV/Adj. EBITDA is expected to go from 26.0x in 2020 to 31.6x in 2021 to 20.3x in 2022.

“At its current valuation of ~2.4x net sales (i.e. gross profit) versus the peer group at ~5.3x, we continue to view Sabio as a compelling investment opportunity given its high exposure to the fast growing CTV market, compelling DSP/SSP and analytic platform, and growing list of Fortune 500 customers,” Leung wrote.

On the Vidillion acquisition, Sabio is currently a customer of Vidillion, which is a supply side platform streaming more than 1,200 TV channels and 10,000 movies and video clips to about 120 countries via the internet to Amazon FireTV, AppleTV, Roku and smart TVs. Vidillion aggregates CTV publishers, and distributes and monetizes their content.

Sabio said the deal will give it further access to the expanding, premium CTV inventory as well as boost Sabio’s gross margins.

“We have been working closely with Vidillion for over a year with a shared belief that consumers, content providers, and brands deserve a better and more accountable CTV experience,” said Rahimtoola in a press release. “The versatility, scalability, and granular level of insights of combining our existing AppScience’s analytics and Sabio’s proprietary Demand-Side Platform (DSP) with Vidillion’s publisher level data and monetization capabilities is expected to enhance our current CTV offering, making it one of the first full-stack CTV solution for marketers and suppliers.”

Disclosure: Sabio Holdings is an annual sponsor of Cantech Letter.