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Paradigm lowers target on Pivotree

A tougher macro environment is likely in store for Canadian commerce solutions company Pivotree (Pivotree Stock Quote, Charts, News, Analysts, Financials TSXV:PVT), according to Paradigm Capital analyst Daniel Rosenberg, who delivered an update to clients on Thursday. Rosenberg lowered his target price from $9.25 to $7.50 per share while maintaining a rating of “Buy” on the stock.

Toronto-based Pivotree has digital platforms in Commerce, Data Management and Supply Chain to provide retail and manufacturers with end-to-end commerce solutions. The company released its fourth quarter and full 2022 financials on Wednesday, featuring revenue up 18.0 per cent year-over-year to $26.2 million and adjusted EBITDA of $1.3 million compared to break even a year earlier. For the year, revenue was up 50.6 per cent to $101.7 million and adjusted EBITDA was $1.0 million compared to negative $3.5 million for 2021.

“We set a goal to exit the year in a position to run the business more profitably and we accomplished this without impacting our organic growth prospects,” said Bill Di Nardo, CEO, in a press release. 

“Our business has proven resilient over the past year and while our clients are exhibiting caution, we remain cautiously optimistic entering 2023 with a strong backlog of bookings and the highest qualified sales pipeline in our history,” he said.

Rosenberg said the Q4 numbers represented a beat of analysts’ estimates, where the $26.2 million topline was above the consensus forecast at $24.4 million, while adjusted EBITDA at $1.3 million was also better than the Street at $0.1 million.

Rosenberg said Pivotree’s profitability benefitted from a strong seasonal Q4 where high-margin managed services performed well. The analyst called 2022 a transitional year as Pivotree moves past the impacts of COVID and invests in new offerings, ones that should lead to increased high-margin revenue up ahead.

“Pivotree offers investors exposure to commerce and cloud transition trends, with the potential to accelerate growth through M&A,” Rosenberg wrote.

“We believe Pivotree is executing well on its transition to higher-margin recurring revenue. We see opportunities in the company’s unique tech to capture more managed services customers, which will drive EBITDA margins higher. While the outlook remains cautious, there is potential for a surprise to the upside in the back half of the year should the outlook improve. Furthermore, M&A has the potential to serve as a catalyst given an active pipeline,” he said.

Rosenberg is forecasting 2023 revenue to rise to $106.0 million and then go to $114.3 million for 2024, while adjusted EBITDA is expected to go from $3.6 million in 2023 to $6.8 million in 2024.

The analyst’s $8.40 target is based on a blended EV/Sales multiple and a discounted cash flow model, with Rosenberg saying multiple compression as a result of macroeconomic conditions was the cause of the lowered target. At press time, Rosenberg’s $8.40 target represented a projected one-year return on Pivotree of 108.9 per cent.

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