Sabio keeps “Buy” rating at Eight Capital

After reporting a quarter he described as “in-line” with expectations, Eight Capital analyst Kiran Sritharan has maintained his “Buy” rating on Sabio Holdings (Sabio Holdings Stock Quote, Chart, News, Analysts, Financials TSXV:SBIO).

On November 20, SBIO reported its Q3, 2023 results. The company posted Adjusted EBITDA of $100,000 on revenue of $8.8-million

“Despite challenging comparables to last year that was boosted by the 2022 U.S. midterm election cycle, where Sabio’s top-line growth markedly outpaced our key peer group, our CTV/OTT business continues to remain strong,” CEO Aziz Rahimtoola said. “Excluding political and advocacy CTV/OTT spending, CTV/OTT revenues were up 29 per cent compared to Q3 2022, as we continued to see strength across several verticals, including [consumer packaged goods], finance and quick-service restaurant. Sabio is now more diversified on a regional, per-seller and customer concentration basis than it was entering the year. Armed with a newly optimized cost structure and the most diversified CTV/OTT business in our company’s history, we expect a sequential step-up in fourth quarter revenues. Moreover, the return of political and advocacy spending in 2024 is expected to drive material growth and, with the optimized cost structure in place, result in meaningful gains in operating leverage.”

The analyst says the company is facing some headwinds but is battling through admirably.

Sabio reported an in-line quarter against their pre-released financials,” Sritharan said. “While the macro-driven volatility is expected to persist, company specific challenges are subsiding, and management noted an improved operating environment. We think the substantial cost cuts should benefit cash generation in the upcoming quarters, and we like the resilience being built into the model.”

In a research update to clients November 22, the analyst maintained his “Buy” rating on SBIO but cut his price target from $2.50 to $1.50, implying a return of 400 per cent at the time of publication.

The analyst thinks Sabio will post Adjusted EBITDA of negative $2.7-million on revenue of $35.3-million in fiscal 2023. He expects those numbers will improve to Adjusted EBITDA of $2.3-million on a topline of $43.0-million the following year.

“We expect the macro-driven weakness to continue into next year, despite improving economic indicators,” Sritharan concluded. “However, key headwinds specific to Sabio are subsiding (ending strikes and an uptick in political spending) and management expects a lift in estimates. The $10M in commitments that Sabio has locked in from agencies implies success with expanding wallet share from large logos. The industry’s transition to CTV remains intact, and we like the fragmented nature of this channel which offers healthy competition from niche players like Sabio.”

Disclosure: Sabio is an annual sponsor of Cantech Letter