Tiny Ltd is a Buy, says PI Financial

PI Financial initiated coverage on tech acquisition vehicle Tiny Ltd (Tiny Ltd Stock Quote, Charts, News, Analysts, Financials TSXV:TINY), with analyst Jason Zandberg starting the stock off on Thursday with a “Buy” rating and $5.50 per share target. 

Based in Victoria, BC, Tiny is a decentralized holding company that acquires for the most part internet and technology-focused businesses. Founded in 2014, Tiny’s co-CEOs Andrew Wilkinson and Chris Sparling have copied the Warren Buffett playbook, which aims to acquire businesses but then leave them as autonomous units within the larger framework, without necessarily developing synergies or opportunities across the portfolio of companies.

In terms of its progress, Tiny acquired Pixel Union for $15 million in 2019, then in 2020 it raised a US$150 million fund to acquire future businesses (with a zero per cent management fee, 30 per cent carry over and eight per cent hurdle rate). Earlier this year, Tiny merged with WeCommerce, with Wilkinson and Sparling owning 69 per cent and ten per cent of the merged business, respectively.

On its corporate strategy, Zandberg said the results have been good for technology consolidators. The analyst looked at other examples like Constellation Software, Quarterhill and Lumine Group and found that as a group, tech consolidators have seen share price returns on average of 21.3 per cent since February 2021 compared to negative 31.5 per cent for the overall Canadian technology index. 

“The strategy of acquiring technology businesses can produce strong returns for investors. With technology valuations low, especially for small to medium-sized firms, Tiny is in a favourable position to purchase strong growth businesses and generate excess cash,” Zandberg wrote.

Zandberg is forecasting revenue for Tiny going from $48 million in 2022 to $201 million in 2023 and to $245 million in 2024, while adjusted EBITDA is expected to go from $5 million in 2022 to $34 million in 2023 and to $56 million in 2024. EPS is estimated to go from negative $0.55 per share in 2022 to $0.00 in 2023 and then to positive $0.15 per share in 2024.

“We expect organic revenue growth of 5 per cent in FY23 followed by 14 per cent organic growth in FY24. Tiny’s Digital Services group is anticipated to experience strong enterprise software sales and SMB software sales to ramp up in late 2023/early 2024,” he said. 

Tiny share have been trading around $4 per share recently, but Zandberg, with a 12-month target of $5.50, is projecting a return of 42 per cent at the time of publication. On valuation, the analyst said Tiny is currently trading at an EV/EBITDA multiple on 2024 numbers of 10.0x and EV/Sales of 2.1x; these multiples compare to the average for its peers in e-commerce, digital services and technology consolidators of 16.0x and 4.9x, respectively.