NowVertical is a triple from here, Beacon says

Beacon Securities analyst Gabriel Leung likes the two new acquisitions announced by Canadian data analytics company NowVertical Group (NowVertical Stock Quote, Charts, News, Analysts, Financials TSXV:NOW). Leung re-affirmed a “Buy” rating on the stock in a Monday report, saying NowVertical is effectively hitting positive earnings through the acquisitions.

Toronto-based NowVertical, a data analytics and vertical intelligence (VI) software and services company, announced on Monday definitive agreements to acquire two UK-based companies, Acrotrend Solutions and Smartlytics Consulancy for an upfront gross consideration of US$6.45 million, including cash of $5.1 million, 1.35 million shares and an earn-out consideration paid over three fiscal years based on adjusted EBITDA targets. (All figures in US dollars except where noted otherwise.)

Acrotrend is a customer data and analytics consultancy company with operations in the UK and India and has as clients global brands such as Reed Exhibitions, The Economist Group, The Walt Disney Company and Sky Group, while Smartlytics has end-to-end data solutions along with customized services to larger organizations, with clients including Signal AI, Leicestershire County Council and Redington. 

The two pickups would represent NowVertical’s tenth and 11th acquisitions to date.

“These companies are excellent examples of how we are creating value for investors,” said NowVertical Chairman and CEO Daren Trousdell in a press release. “The addition of the Acrotrend and Smartlytics teams will help accelerate and grow our expected positive Adjusted EBITDA and add additional opportunities for further organic growth in the UK, a key market for NOW. They also set the stage for our next round of acquisitions that, under the NOW banner, will help customers realize the potential of Vertical Intelligence.”

Looking at the new deals, Leung noted that they are expected to increase NOW’s revenue run-rate by about $6.1 million and its adjusted EBITDA by about $1.9 million on a trailing 12-month basis. Those numbers would imply a take-out valuation of about 1.1 sales and about 3.4x EBITDA, Leung said. 

“In our opinion, these acquisitions further augment NOW’s footprint in the UK, which it views as a key growth region, and could help to accelerate organic growth via cross-sell opportunities. Furthermore, with these transactions, we believe the company has hit positive EBITDA run-rate results, which we view as a key milestone,” Leung wrote.

The analyst said he is maintaining his estimates as is, pending close of the transactions as well as additional details on how NOW plans to fund the cash component. Leung is expecting NowVertical to generate full fiscal 2022 revenue and EBITDA of $26.9 million and negative $2.1 million, respectively, and 2023 revenue and EBITDA of $37.9 million and $0.3 million, respectively.

With the update, Leung maintained a target price on NOW of C$1.70 per share, which at press time represented a projected one-year return of 209 per cent.