NowVertical earns price target raise at Ventum

Following the company’s third quarter results, Ventum analyst Rob Goff has raised his price target on NowVertical Group (NowVertical Group Stock Quote, Chart, News, Analysts, Financials TSXV:NOW).

On November 14, NOW reported is Q3 2024 results. The company posted Adjusted EBITDA of $2.0-million on revenue of $10.7-million, a topline that was down 29% year-over-year.

“Our third quarter results clearly highlight the accelerated progress we’ve made in executing our One Brand, One Business Integration strategy. Q3 2024 Adjusted EBITDA of $2 million, up from $1.5 million in Q2 2024 (excluding the Allegient divestiture) indicates our integration strategy and efficiency focused measures are yielding results. Outstanding credit goes to our operator-first leadership team who have executed this at a faster pace than anticipated,” said CEO Sandeep Mendiratta. “We have renegotiated acquisition liabilities, leading to meaningful savings and a more favourable payment schedule for those liabilities. Acquisition-related liabilities have been reduced in total by an estimated $5.4 million. Our third quarter has demonstrably put us on a path to achieving our objective of having annual EBITDA of $10 million, by achieving annual revenue of $50 million and a best-in-class 20% EBITDA margin. We believe we now have a platform for sustained organic revenue growth, with strong margins across our core markets. We look forward to discussing these points and more on our third quarter investor call.”

Goff said this quarter is setting the table for future growth.

“The financial outperformance validates the revenue and EBITDA model setting the stage for balanced growth and return to double-digit gains,” he wrote. “While results beat our forecasts, we look for balanced growth where the LATAM growth moderates and UK revenues are expected to show QoQ growth trending to YoY growth. UK revenues have been held back to date with some contract delays and the culling of low-margin business.”

In a research update to clients November 15, Goff maintained his “Buy” rating on NOW, but raised his price target from $0.40 to $0.45, implying a return of 130.8% at the time of publication.

Goff thinks NOW will post EBITDA of (All Figures USD) $6.3-million on revenue of $38.4-million in fiscal 2024. He expects those numbers will improve to EBITDA of $7.1-million on a topline of $42.8-million in fiscal 2025.

“Our view considers the aggressive upside where NOW shares reflect 5.8x/4.7x 2024/25 EV/EBITDA— a level we see as significantly undervalued given the Company’s growth trajectory,” the analyst added. “NOW’s restructuring into a single business unit, with a unified brand and professional services focus, aligns it with industry peers in consulting. While much larger capitalized stocks, our NA consulting peers are valued at 14.6x/13.2x’s 2024/25 EV/EBITDA while our NA IT and Business services large-cap peers are valued at 10.7/10.6x. Our small-cap peer group is valued at 8.6x/6.5x’s (median) and our international peer group trades at 12.1x/9.9x. Despite its shift towards professional services, we include Big Data Analytics Peers given NOW’s expertise within this space and where their momentum reflects the strength of demand across the ecosystem. The median 2024/25 valuation for this peer group is at 7.5x/6.8.”