FiscalNote stock is a Buy, says Roth Capital

Roth Capital Partners initiated coverage on compliance-centric data company FiscalNote Holdings (FiscalNote Holdings Stock Quote, Charts, News, Analysts, Financials NYSE:NOTE), with analyst Richard K. Baldry starting the stock off with a “Buy” rating. In a Wednesday report, Baldry said FiscalNote is shifting focus to profitability and offers investors an attractive combination of long-term organic and acquisitive growth along with catalyst opportunities with upcoming quarterly financials over the next several quarters.

Founded in 2013 and headquartered in Washington, DC, FiscalNote went public in 2022 through its SPAC acquisition by Duddell Street Acquisition Corp. FiscalNote aggregates, synthesizes and distributes complex regulatory data to government, non-profit and corporate clients worldwide, with a model that can synthesize large volumes of non-standardized legislative and administrative compliance-related data. 

On its financials, Baldry said the company has about $126 million in annualized recurring revenue with cash gross margins of roughly 80 per cent. Baldry estimates NOTE to be currently trading at a 5.6x EV/run-rate revenues (net of cash), which is roughly in line with his monitored SaaS universe average at 4.9x. 

The analyst said while FiscalNote has a similar organic growth rate of 14 per cent in 2022 versus the 13 per cent average among peers, the company has shown a steady inorganic growth strategy for a number of years that should incrementally increase its overall growth rate from time to time. 

“Acquisitions have also proven accretive (narrowing losses expected prior at least) fairly rapidly, in our view, as AEBITDA losses narrowed from 2021 to 2022 even as total revenue growth accelerated from 27 per cent in 2021 to 37 per cent in 2022,” Baldry wrote.

Baldry said FiscalNote has a stable of blue-chip clients, including a number of US government acronyms such as the CDC, DHS and DoD and private entities like Amgen, Chevron, CNN, Microsoft, Pepsi and Goldman Sachs. Moreover, Baldry called NOTE a growing leader in a regulatory content aggregation and distribution industry that has tailwinds behind it.

“As we believe regulatory and compliance backdrops are unlikely to diminish in influence or complexity under any reasonable outlook, we view NOTE’s end markets as large and growing,” he said.

With his Buy rating, Baldry started NOTE off with a 12-month target price of $4.75 per share, representing at press time a projected return of 58 per cent.

“While many ‘de-SPACs’ lack fundamental value, we believe NOTE’s political, legislative and regulatory data-centric platform represents a uniquely valuable Cloud Data Services franchise. With guidance to reach AEBITDA profitability by year-end, we believe NOTE should separate itself from the weaker de-SPAC crowd in 2H23 and 2024,” Baldry said.