Specialized data analytics company NowVertical Group (NowVertical Group Stock Quote, Charts, News, Analysts, Financials TSXV:NOW) received a coverage initiation from Beacon Securities on Monday, with Beacon analyst Gabriel Leung starting the company off with a “Buy” rating and $1.70 target price, good for a projected one-year return of 262 per cent.
Leung said there’s a robust market demand for the kind of data intelligence provided by NowVertical and he says the company has strong organic growth potential to complement its demonstrated M&A prowess.
Formed in September, 2020, Toronto-based NowVertical has a number of products and services for the data analytics sector, focusing on data transformation, data visualization and artificial intelligence and automation. The company currently has over 150 customers across three continents and in industries such as government, media, energy, financial services, security, enterprise and service providers, with recent new customer wins including Aeromexico and the US Department of Energy.
Leung pointed to research showing that the data analytics market is expected to grow to $346 billion by 2030, representing a CAGR of 30.7 per cent between 2022 and 2030.
“The adoption of big data analytics software by major organizations is expected to be driven by the increasing need to gain better insights into business planning and to personalize services and products to consumer preferences,” he said.
“We believe the company’s ability to deliver its solutions under a federated model of software and (vertically-focused) services differentiates it from its competitors. We also believe the company’s ability to upsell software into its services customer base could help to drive a healthy margin expansion over time,” Leung wrote.
By the numbers, Leung sees NowVertical taking its revenue from an estimated $26.9 million in 2022 to $37.9 million in 2023 and to $42.8 million in 2024. On EBITDA, he is calling for negative $2.1 million in 2022 and positive $0.3 million and $1.4 million in 2023 and 2024, respectively.
Having gone public via RTO in March, 2021, NowVertical’s share price is currently down about 63 per cent year-to-date. But Leung sees upside, pointing to the company’s strong M&A record, where it has acquired nine companies and technologies since its inception.
On a comps basis, Leung said comparable software and services companies are currently trading at about 3.0x next fiscal year’s EV/Sales in comparison to NowVertical which is currently trading at 0.7x.
“As NOW increases its revenue scale, particularly in higher-margin software, and demonstrates further evidence of successful top and bottom-line synergies via its acquisitions, we believe the company could benefit from a multiple expansion closer to its peers,” Leung wrote.
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