Beacon Securities analyst Gabriel Leung lowered his rating and target on Canadian data analytics company NowVertical Group (NowVertical Group Stock Quote, Charts, News, Analysts, Financials TSXV:NOW) after reviewing NOW’s latest quarterly financials. In a Monday report, Leung asserted a “Speculative Buy” rating (previously “Buy”) and C$1.00 target price (previously C$1.70), implying at press time a projected one-year return of 245 per cent.
Toronto-based NowVertical is a software and services provider with vertically-specific data applications. Founded in 2020, the company has made nine acquisitions since inception. NOW reported its fourth quarter results on April 19, with revenue of $8.4 million compared to $1.1 million a year earlier. Adjusted EBITDA was break-even compared to a loss of $2.0 million a year ago. (All figures in US dollars except where noted otherwise.)
“NOW has ramped up our operations to build significant scale and position us to compete with some of the biggest and most well-known brands in the AI industry,” said CEO Daren Trousdell in a statement.
“We have done this with a very strong and dedicated corporate development team that has internally sourced, pursued, and closed 12 acquisitions, that all-in generates approximately $60 million in revenue on a trailing 12-month basis,” he said.
So far in 2023, NowVertical has closed on three acquisitions in Acrotrend Solutions, Smartlytics Consultancy and A10 Group, and the company said its adjusted revenue guidance for the Q1 would be $11.5-$12.5 million.
The company also recently raised gross proceeds of $3.69 million through an equity offering of 9.6 million units at C$0.52 per share (including a three-year warrant at C$0.80 per share).
Looking at the Q4 results, Leung said the $8.4 million topline compared to his estimate at $8.8 million, while the breakeven EBITDA compared to his forecast of a loss of $177,000.
Leung said NowVertical’s focus over the near-term is likely to revolve around integration efforts related to recent acquisitions along with execution on its pipeline of opportunities, the results of which could translate into more meaningful growth over the second half of the year, according to the analyst.
“The reduction in our target and target multiple reflects dilution from the equity financing, the company’s slower pace of consolidated growth versus our initial expectations, along with a relatively high debt ratio (in CY23),” Leung wrote.
“We are also adjusting our rating to Speculative Buy (was Buy) given the company’s current balance sheet position, its (current) relatively anemic EBITDA margin position, and expected near-term cash outflows related to debt repayments and deferred cash payments related to acquisitions, which could require the company to seek alternative financing options,” he said.