iA Capital launches on Sabio with a Buy rating

iA Capital Markets initiated coverage on Thursday on  Sabio Holdings (Sabio Holdings Stock Quote, Charts, News, Analysts, Financials TSXV:SBIO), starting the stock off with a “Buy” rating and 12-month target price of C$2.90 per share, which at press time was good for a projected return of 195.9 per cent. iA analyst Neehal Upadhyaya said SBIO is trading well below its peer group despite a better growth profile and positive EBITDA.

Sabio is a tech provider for the advertising-supported Video on Demand (VOD) and streaming industry with three subsidiaries. The company’s App Science platform provides privacy compliant, non-cookie, cross-screen household data from 55 million validated homes and 110 million connected TV (CTV) devices for insights on consumer behaviour. 

Its Vidillion business, acquired in April, 2022, creates, distributes and manages ad-supported CTV and OTT (over-the-top) apps on streaming platforms like Roku, Vizio and Disney+. Finally, its Sabio business works with major brands and agencies through its proprietary DSP and ad server to deliver targeted ad campaign solutions.

Upadhyaya said the still growing trend to cord-cutting of traditional TV-watching in favour of VOD has shifted the advertising landscape.

“With the shifting audience and the inherent lack of data driven targeting, brands are following eye-balls and shifting their advertising budgets to VOD platforms as they allow for greater return on advertising spend (RoAS) through analytically guided marketing campaigns,” Upadhyaya wrote.

The analyst sees Sabio’s suite of ad tech solutions demonstrating its value to customers, allowing them to dynamically modify their ad campaigns through App Science, which Upadhyaya called a key differentiator. Moreover, he said Sabio should be able to capture a larger portion of its customers’ marketing budgets as that value is realized.

“Sabio has been able to attract a strong group of blue-chip customers, enabling it to grow by ~80 per cent over the past two years despite the continued softness in the macroeconomic environment. By leveraging the insights provided by App Science, SBIO can solidify its positioning within the many demand-side platforms that are used by its customers,” he said.

By the numbers, Upadhyaya is forecasting Sabio’s revenue to go from $42 million in 2022 to $55 million in 2023 and to $68 million in 2024. He is forecasting adjusted EBITDA to go from $1.3 million in 2022 to $0.8 million in 2023 and to $4.8 million in 2024.

Upadhyaya’s C$2.90 target is based on a 1.5x multiple of his 2024 EV/Revenue estimate, which he said is well below SBIO’s peer group average at 3.3x.

“Despite a superior growth profile compared to its AdTech peers, achieving positive Adj. EBITDA, and supporting its growth strategy from FCF, the Company is trading at just 0.5× our 2024E revenue estimate,” Upadhyaya wrote.

“We believe the current risk-to-reward ratio is compelling and Sabio represents an excellent opportunity for investors who want to invest in an AdTech story at a de-risked valuation level,” he said.

Disclosure: Sabio Holdings is an annual sponsor of Cantech Letter.