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Lightspeed Commerce is undervalued, says iA Capital

iA Capital Markets analyst Neehal Upadhyaya delivered a report to clients on Tuesday where he reiterated a “Buy” rating on Canadian payments and digital commerce company Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials NYSE:LSPD), saying the upcoming quarterly numbers should show a business growing at a healthy pace.

Ahead of second quarter fiscal 2023 results from Lightspeed, due on Thursday before market open, Upadhyaya said he’s expecting $182 million in revenue for about a 37 per cent year-over-year growth rate and an adjusted EBITDA loss of $10.4 million compared to a loss of $8.7 million a year earlier. Both of the analyst’s estimates are in line with the consensus call as well as guidance provided by management. (All figures in US dollars.)

Upadhyaya said he’s expecting an increase in transaction-based revenues due to a rise in payment adoption rates should help lift LSPD’s topline. As well, the analyst said the company’s earnings will likely get a bounce due to foreign exchange tailwinds related to a strengthening US dollar. 

“Our forecasts call for transaction-based revenues to reach ~$94 million, which would represent a year-over-year increase of 44 per cent on adoption rates similar to Q1/F23 (~15 per cent). We believe that in the long run, LSPD can achieve payment adoption rates well over 30 per cent, slowly approaching Shopify’s 50 per cent+ mark, especially considering that payment adoption rates of new customers are 60 per cent+,” Upadhyaya said.

Looking at the results from another Canadian e-commerce outfit, Shopify, Upadhyaya said the company’s recently reported third quarter showed gross merchandise volume (GMV) was up 11 per cent and point-of-sale gross merchandise value was up 35 per cent, both of which bode well for Lightspeed.

On valuation, Upadhyaya estimates LSPD to be currently trading at 2.2x his 2023 EV/Revenue estimate, which he says is well below its e-commerce payment peer group average at 4.4x as well as its Canadian SaaS peers at 6.4x. 

“We expect LSPD to deliver another robust quarter through solid year-over-year growth in gross transaction volume (GTV) and continued uptick of payment adoption rates, which should positively impact ARPU,” he wrote.

“We believe the current valuation is compelling, especially if LSPD continues to grow ~30 per cent+ year-over-year organically while approaching break-even Adj. EBITDA,” Upadhyaya wrote.

With his retained “Buy” rating, Upadhyaya also reiterated a target price of $29.00 per share, which at the time of publication represented a one-year projected return of 51.4 per cent.

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