Quisitive Technology has a huge upside, says Eight Capital

Some added cash from a recent equity financing is a good fit for Quisitive Technology Solutions (Quisitive Technology Solutions Stock Quote, Charts, News, Analysts, Financials TSXV:QUIS), according to Eight Capital analyst Christian Sgro, who updated clients on the company on Tuesday. Sgro re-issued a “Buy” rating on the stock and $1.50 target price, implying at press time a one-year return of 317 per cent.

Toronto-based Quisitive, a Microsoft partner with cloud-based business solutions for enterprise companies, announced on June 30 the closing of a bought deal public offering of about 19.8 million shares, including over-allotment, at a price of $0.35 per share for gross proceeds of about $6.9 million.

The company said it’ll use the funds primarily to purchase Sales Residuals from BankCard sales agents, essentially sales commissions/payment streams, with the aim of eliminating the Cost of Sales related to those disbursements so as to boost Quisitive’s gross margins. 

Commenting on the move, Sgro said the bought deal was led by a Toronto-based fund that committed $5.0 million of the total, meaning the new ownership will increase the Canadian shareholdings and will help QUIS avoid being classified as a US foreign reporting issuer, thereby avoiding “distracting and costly” reporting and filing requirements, according to Sgro. 

“The proceeds will pad the Q2/23 closing cash balance and provide flexibility for: 1) satisfying near-term earn-out obligations in the most suitable combinations of cash or equity, and 2) plans to purchase accretive Sales Residuals from BankCard USA agents to increase the Payments GM,” Sgro wrote.

“The transaction was minimally dilutive given the size and we continue to see Quisitive shares as attractive value at these prices,” he said.

Sgro said Quisitive is currently cash-generative and he expects the company’s cash balance to have grown as a function of its operating activity, where QUIS reported with its first quarter 2023 results a cash position of $5.9 million and $74.7 million in debt.

Quisitive shares climbed to a high of about $1.60 in April 2021, but the stock has headed lower over the past two years and dropped below $0.40 last month. Year-to-date, QUIS is currently down 57 per cent.

Sgro estimated QUIS to be currently trading at 4.7x 2024 EV/adjusted EBITDA, which compares to its cloud and payments peers at 10.4x and 14.4x, respectively. Sgro’s $1.50 per share target price is based on 14.0x 2024 EV/adjusted EBITDA.