Quisitive Technology Solutions has a 125 upside, says Beacon

Beacon Securities analyst Gabriel Leung has given an upgrade to his call on Quisitive Technology Solutions (Quisitive Technology Solutions Stock Quote, Chart, News, Analysts, Financials TSXV:QUIS), raising his rating from “Speculative Buy” to “Buy” while maintaining a C$2.25/share target price in an update to clients on Thursday.

Dallas, Texas-based Quisitive offers Microsoft cloud solutions, including Microsoft Azure, Microsoft Dynamics business applications and Microsoft O365, CRG emPerform, an employee performance management software for small and medium sized businesses, as well as business solutions from other technology partners related to the Microsoft platform.

Leung’s latest update comes after Quisitive reported its fourth quarter and year-end results for the 2021 fiscal year. The quarterly report was headlined by $33.3 million in revenue (all figures are in US dollars except where noted otherwise), which came in ahead of the Beacon Securities expectation of $31.7 million and were paired with a gross margin of 39.3 per cent. Meanwhile, the company’s adjusted EBITDA came in at $4.4 million for the quarter, which was below the Beacon Securities expectation of $5.3 million.

“Relative to our expectations, we believe the slightly lower-than-expected EBITDA was due to the timing of the close of the Catapult acquisition (around one month worth of contributions), along with costs associated with the ramp-up of the LedgerPay, which has hit numerous key milestones on its path to full commercialization,” Leung said.

Looking closer at the revenue figures, the company’s Global Cloud Solutions generated $23 million in revenue for a 155 per cent year-over-year increase with 19 per cent organic growth, while the remaining $10.3 million came from the company’s Global Payment, a significant jump from the $1.2 million reported in the same quarter of 2020 and boosted by the recent addition of BankCard USA.

Leung believes strong secular trends also favour Quisitive’s growth in the Global Cloud Solutions stream in the near-term, along with cross-sell opportunities between its recent acquisitions. On the Global Payment front, Leung believes BankCard USA’s organic growth profile, featuring a 20 per cent year-over-year increase, will be augmented by early contributions from its LedgerPay integration.

“The progress made in 2021 represents a strong blend of organic and inorganic growth, as we acquired three dynamic companies in the calendar year and made significant progress on LedgerPay commercialization,” said Quisitive CEO Mike Reinhart in the company’s April 20 press release. “With the recent milestone achievement of Mastercard certification, we are progressing to onboard our first pilot customers to our innovative LedgerPay solution in Q2. The Quisitive Merchant Services business enabled by the BankCard acquisition continues to see strong growth with processing volume of $3.8 billion in 2021.”

“With our dual expansion strategy fueled by the growing industry tailwinds, we are poised for growth in our effort to further augment our footprint and capture meaningful market share within the cloud and payments ecosystems,” Reinhart added.

Financially, the company also reported $2.9 million in free cash flow for the quarter, ending the quarter with $13.5 million in cash available compared to $78.6 million in debt.

All told, Quisitive wrapped up the 2021 fiscal year with $96.7 million in revenue. Looking ahead to 2022, Leung forecasts revenue to jump to $172.6 million for a potential year-over-year increase of 78.5 per cent, followed by a 2023 forecast of $191.9 million for a potential year-over-year increase of 11.2 per cent.

In terms of valuation, Leung forecasts a drop in the company’s EV/Revenue multiple from the reported 3.7x in 2021 to a projected 2.1x in 2022, then to a projected 1.9x in 2023.

The company also ended the year with $13.9 million in adjusted EBITDA for an implied margin of 14.4 per cent. Going forward, Leung forecasts 2022 adjusted EBITDA of $23.5 million for a slightly smaller projected margin of 13.6 per cent, while the 2023 adjusted EBITDA is projected at $27.5 million for an implied margin of 14.3 per cent.

From a valuation perspective, Leung forecasts the company’s EV/adjusted EBITDA multiple to drop from the reported 25.8x in 2021 to a projected 15.2x in 2022, then dropping to a projected 13x in 2023.

“We expect to see more notable contributions from LedgerPay (both in terms of new customers and existing BankCard customers transitioning to LedgerPay) within CY23,” Leung said. “However, with key LedgerPay milestones now achieved and initial pilot customers now being onboarded, we are taking the opportunity to upgrade the stock from Speculative Buy to Buy.”

Quisitive’s stock has had a rough go of it this year, dropping about 30 per cent drop in that time. At the time of publication, Leung’s C$2.25 target represented a projected one-year return of 125 per cent.