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HS GovTech has a 196 per cent upside, says Echelon

The stage is set for a strong second and third quarter of the year from data management company HS GovTech Solutions (HS GovTech Solutions Stock Quote, Charts, News, Analysts, Financials CSE:HS), according to Echelon Capital Markets analyst Mike Stevens, who reviewed the latest quarterly results in a Tuesday report. 

Vancouver-based HS GovTech is a SaaS provider to government in the US and Canada, with platforms for inspection, information, communication and data management. The company’s TM cloud and mobile applications are currently running in over 800 state and local government organizations across North America.

Last month, HS announced it’s seeing a significant increase in market demand over the first quarter of the year, with its total contract value reaching over $6 million. Then on Tuesday, the company reported its fourth quarter 2022 results, showing revenue up six per cent year-over-year to $6.0 million and an adjusted EBITDA loss of $4.26 million compared to a loss of $3.0 million a year earlier. (All figures in US dollars except where noted otherwise.)

HS said its Q4 subscription revenues were up 14 per cent year-over-year to $4.47 million and that subscription revenue from its largest contract to date, announced on September 7, 2022, only starting to be realized in late November and that a full year’s subscription from that contract will be recognized in 2023.


“Over the past two years, we have scaled the company to handle the pace of growth that we enjoy now and expect to see for the next several years,” said Silas Garrison, CEO, in a press release.

Looking at the Q4 numbers, Stevens said they were largely in line with his estimates, with the $1.5 million topline being equal to his $1.5 million estimate and the negative $1.3 million EBITDA comparing to his forecast at negative $1.1 million.

“We’re encouraged that the revenue mix in the quarter skewed toward the Company’s SaaS segment with modest outperformance – Professional services can be quite lumpy quarter-to-quarter and thus, we are less concerned with any quarterly underperformance while we expect the category to gradually become a smaller percentage of annual revenues longer-term,” Stevens said.

“For Q123 we look for solid q/q growth with revenues/gross profit/EBITDA forecasted at $1.7 million/$1.3 million/-$1.0 million before the Q2/Q323 quarters see HS GovTech enjoy a more aggressive ramp toward its 2023 goals,” he said.

With the update, Stevens maintained a “Speculative Buy” rating and C$0.80 target on HS, implying a one-year return of 196.3 per cent.

On comps, Stevens said despite being not as large and profitable as its larger Canadian and American SaaS Provider peers, HS is growing about 200-400 per cent faster and yet is at a “steep valuation discount” to both groups.

“We’d also note the Company owns an arguably more defensive customer base than these comps, considering the majority own significant exposure to the private sector, which will be challenged during volatile macro environments,” Stevens said.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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