Tio Networks Corp., a little-known cloud-based bill payment company from Vancouver, is gaining increased attention after doubling its market value over the last six months and beating analyst estimates in its past two quarters.
Shares of Tio, which handles mostly U.S. telecom and utility company payments through kiosks, in stores and across mobile and the Web, have surged about 116 per cent over the past year. Much of the gain has been since July when Tio announced the $31-million (U.S.) purchase of consumer retail bill payment company Softgate Systems Inc., beefing up its presence in the northeastern United States.
All seven analysts who cover the stock have a "buy" recommendation and a consensus price target over the next year of $2.56, according to S&P Capital IQ, about 32 per cent above its current price of $1.94.
The stock's recent run-up shouldn't deter new investors, said 5i Research managing partner Ryan Modesto.
"Just because a company is up doesn't mean it will stop going up," said Mr. Modesto, whose company holds Tio stock in its growth portfolio.
Mr. Modesto expects the company to keep increasing both revenues and margins through acquisitions such as Softgate, as well as growth in its existing businesses. Tio is also expected to gain the attention of more investors now that it has surpassed $100-million in market capitalization, a threshold for many small-cap funds to start considering a stock.
If the Softgate deal closes in the new year as anticipated, the TSX Venture exchange-listed company is also expected to seek a listing on the main Toronto market, which could draw even more investor interest.
"This is a name that will get more and more on the radar screen of investors," said PI Financial analyst David Kwan.
He recently increased his target to $3 from $2.70 after Tio beat analyst expectations in its first quarter ended Oct. 31.
The company reported revenues of $15.3-million, above expectations of $14.3-million. Gross margins reached a record 51 per cent, compared with 30 per cent for the same time last year. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $2-million, above street consensus of $1.5-million, and compared with $876,000 a year earlier. Tio, which earns 99 per cent of its revenues in the United States and reports in Canadian dollars, is also benefiting from the currency conversion.
Paradigm Capital analyst Kevin Krishnaratne increased his price target by 25 cents to $2.50 after the latest earnings were released on Dec. 17. He expects Tio to keep growing through acquisitions, predicting another deal "within a quarter."
"We encourage investors to buy ahead of this anticipated M&A [merger and acquisition] that should provide a further boost to Tio's stock," Mr. Krishnaratne said.
Softgate is Tio's largest acquisition date and follows two other purchases that closed in 2014, including Global Express for $8-million and ChargeSmart.com for $2-million.
Chief executive Hamed Shahbazi said he's modelling Tio after other acquisition-driven technology companies with "durable revenue streams" such as Constellation Software Inc. and Enghouse Systems Ltd.
"There is a real discipline there in how they buy, who they buy and the sizes," Mr. Shahbazi said in an interview. "That's the kind of discipline we're trying to build at Tio."
Analysts say the main risks for Tio investors include fluctuations in the Canadian dollar and any hiccups with the integration of new companies like Softgate, as well as the loss of major customers. Two of its largest clients are telecom companies AT&T and Cricket Wireless.
"Losing either of its two 'anchor' biller partners would cause a severe reduction in Tio's transaction volumes and overall revenues," Haywood Securities analyst Pradeep Sangha said in a note.
He said the company is working on diversification and he likes its growth outlook.
"We believe Tio has built a scalable, multichannel platform that when combined with its low capital expenditures should allow the company to increase its incremental revenue and margins while keeping operating expenses in check," said Mr. Sangha, who has a $2.30 target on the stock.