AcuityAds is over a double from here, says Echelon

Echelon Capital Markets analyst Rob Goff is still keen on AcuityAds Holdings (AcuityAds Stock Quote, Chart, News, Analysts, Financials TSX:AT), maintaining a “Speculative Buy” rating and target price of $9.00/share for a projected return of 114 per cent in his latest update to clients on Friday.

Founded in 2009 and headquartered in Toronto, AcuityAds provides real-time bidding solutions for digital advertising and it has a demand side platform (DSP) for marketers and advertisers to run automated, targeted and fully customizable campaigns powered by illumin, its new automation platform.

Goff’s updated analysis comes after AcuityAds announced its intention to commence a Normal Course Issuer Bid for the cancellation of up to ten per cent of the company’s public float, or up to 5.35 million common shares at an average cost of $4.50/share, with the $24.1 million total largely funded by free cash flow.

The company’s board has already signed off on the NCIB, though it is still awaiting approval from the Toronto Stock Exchange; pending that acceptance, the NCIB would begin two trading days after the release of Q122 results, which is scheduled for May 11 after market close.

If the NCIB receives approval, AcuityAds would be able to purchase up to 25 per cent of the average daily volume on a last six months basis, which would translate to approximately 150,000 shares daily, and also includes the ability to purchase one exempt block per week that can exceed the daily allowance. In addition, AcuityAds can also set trading parameters for its automatic share purchase plan ahead of blackout periods to allow ongoing activity.

Meanwhile, the NCIB will terminate at the lesser of one year or the purchase of the maximum number of common shares allowable.

“While M&A remains a key focus for management, the strength of our balance sheet with over $100 million in cash, generating approximately $20 million in annual cash flow from operations, and our growth outlook creates an opportunity to surface additional value for our shareholders while continuing to execute against the Company’s long-term strategic plan,” said Tal Hayek, Co-Founder and Chief Executive Officer of AcuityAds in the company’s April 21 press release.

At this point, the NCIB has not done anything to change Goff’s financial forecasts, as his 2022 revenue forecast remains at $150.1 million for a potential year-over-year increase of 23 per cent, while the $170.5 million projection for 2023 would mark a potential year-over-year increase of 14 per cent.

In terms of valuation, Goff forecasts the company’s EV/Revenue multiple to rise from the reported 1x in 2021 to 1.1x in 2022, then dropping to a projected 0.7x in 2023.

Meanwhile, Goff continues to forecast a bit of compression in 2022 at a 15 per cent margin with $21.9 million in adjusted EBITDA compared to the reported $20.3 million from 2021 with a 16.6 per cent margin. Looking ahead to 2023, Goff foresees another margin compression, this time to 13 per cent with $22.8 million in adjusted EBITDA.

From a valuation standpoint, Goff foresees an increase in the company’s EV/EBITDA margin from the reported 6.1x in 2021 to a projected 7.6x in 2022, then dropping to a projected 5.5x in 2023.

Despite the relative lack of change in his long-term forecasts, Goff’s projections for the opening quarter of 2022, set at $25.6 million in revenue and $1.2 million in adjusted EBITDA, are on the high side of the Street expectations of $25.4 million in revenue and $800,000 in adjusted EBITDA.

“We note that on its Q420 call, management confirmed 2022 revenue growth guidance of 20-25 per cent while noting that Q122 revenue is likely down on a y/y basis given one large client in Q120 who switched to an agency that didn’t book with AT in the quarter,” Goff said.

Overall, Goff is keeping a positive opinion of the ongoing growth of digital marketing and in particular the secular growth of Connected TV.

“With respect to AT, we are particularly bullish towards its illumin and CTV growth profiles noting that there is an element of overlap,” Goff said. “We see illumin offering superior targeting and feedback for brand advertisers using managed, self-service or hybrid solutions. We see illumin integrating with emerging walled garden or fortressed garden endto-end solutions where brands are able to bypass elements of the traditional digital media landscape where as much as 50 per cent or more of brand expenditures go to the intermediaries rather than the publishers as the end content/audience owners.”

AcuityAds’ stock price has dropped by about 14 per cent since the start of 2022, though it has rebounded after hitting a 2022 low of $2.76/share on March 11 and currently trades in the low-$4.00 range. The stock made huge strides in 2020 but much of those gains were lost in 2021.