PopReach is heading to $1.00, says Beacon

The new pickup looks like a potentially good fit for PopReach Corp (PopReach Stock Quote, Charts, News, Analysts, Financials TSXV:POPR), according to Beacon Securities analyst Gabriel Leung who reviewed the deal in a Friday update, saying PopReach represents a unique way for investors to participate in the ad tech space.

PopReach shares popped on Friday with the announcement of its acquisition of Boca Raton, Florida-based Ubiquity Agency for total consideration of $44.3 million. (All figures in US dollars except where noted otherwise.)

The deal involves 41 million shares at C$0.34 per share, the issuance of a $13.75 million convertible debenture and the assumption of $1.25 million of liabilities on Ubiquity’s balance sheet.

PopReach has a number of assets in its media and tech ecosystem, including a mobile game publisher with a catalogue of currently 25 games, a push notification subscription and monetization platform, a digital media advertising services provider and an e-commerce ad tech platform. 

On Ubiquity, the company was founded in 2006 and has offices in Florida and Amsterdam. Like PopReach, Ubiquity is also a media consortium with multiple businesses including a digital agency and performance marketing network, a direct-to-consumer omnichannel marketing company, a full-stack development and SaaS platform for online engagement and analytics and a data-driven performance marketing company with over 200,000 unique members acquired monthly.

“With deep capabilities in digital user acquisition and traffic distribution that are grounded in technology and data analytics, this acquisition ticks all the boxes in advancing our vision of building a walled garden of products and services to better connect businesses to target audiences,” said Jon Walsh, CEO of PopReach, in a press release. 

“The Ubiquity team has assembled a set of businesses that aligns strongly with our cultural values, with a disciplined approach that balances strong organic growth with healthy positive cash flow contribution,” Walsh said.

The convertible debenture attached to the deal matures on May 13, 2025, and is convertible anytime at the election of the holders at C$0.78 per share. 

Leung noted that Ubiquity generated trailing 12-months revenue of $51 million and EBITDA of $5.8 million, which would imply a takeout valuation of 0.9x sales and 7.6x EBITDA. Leung has estimated PopReach’s pro-forma consolidated business as having revenue of $139 million and EBITDA of $17.5 million as of last quarter results. Leung has estimated the pro-forma balance sheet at $6.7 million in cash against debt of $53.6 million for a net debt to EBITDA of 2.7x. Shares outstanding are at about 275 million.

Earlier this year, PopReach closed on a merger with diversified digital tech company Federated Foundry, acquired for C$160 million. Leung said the Ubiquity purchase will jibe well with Federated’s assets.

“At first glance, we believe the rationale for the acquisition is to add scale and to accelerate PopReach’s goal of creating a vertically integrated, wall-garden network (i.e. leveraging the eyeballs from its gaming portfolio with advertisers from its adtech portfolio),” Leung wrote.

“In our opinion, there will likely be good cost synergies between Ubiquity and Federated’s adtech business, which could enhance the consolidated margin profile. Over time, we believe there could also be good revenue synergies between the content and adtech businesses, which we believe represents the key catalyst for driving a multiple expansion in the stock,” he said.

PopReach shares have been flat since resuming trading in May, hanging just under the $0.40 per share mark. But Leung sees plenty of upside to the name and has reiterated a “Buy” rating and C$1.00 target, which at press time represented a projected 12-month return of 178 per cent. Looking ahead, Leung thinks PopReach will generate full 2022 revenue of $75.8 million and EBITDA of $9.8 million and 2023 revenue of $141.7 million and EBITDA of $17.5 million.

“At a pro-forma valuation of ~0.8x EV/Sales and ~6.9x EV/EBITDA, we view the stock as a cheap way for investors to get exposure to a compelling large scale, advertising network play,” Leung wrote.

Last month, PopReach released its second quarter financials, featuring revenue up 15.5 per cent to $22.1 million and adjusted EBITDA at $2.9 million versus $1.0 million a year earlier.