Inside the Market’s roundup of some of today’s key analyst actions
Seeing it “operating at the intersection of software and financial services,” Credit Suisse analyst Timothy Chiodo initiated coverage of Lightspeed POS Inc. (LSPD-N, LSPD-T) with an “outperform” rating on Tuesday.
“Lightspeed is operating within what we believe will be one of the most important themes within our coverage over the coming 5-10 years – the intersection of software and financial services,” he said in a research note released before the bell. “Lightspeed is not only capable of enabling complex merchants to run their businesses, but also in embedding and powering additional ecosystem- and monetization-enhancing financial services such as payments, instant payouts, lending (Lightspeed Capital powered by Stripe), card issuing, banking & treasury services, and much more (e.g., potential for payroll, AP automation, insurance).”
Mr. Chiodo thinks the company’s payments platform, Lightspeed Payments, will be an “increasingly important driver of Lightspeed’s stock as it continues to drive top-line growth.”
“We forecast transaction-based revenue to grow to 50 per cent of the total revenue mix by fiscal 2024 from 20 per cent in 2020,” he said. “Lightspeed has a large base of existing merchants that do not currently use an integrated payments provider (two-thirds of total GMV at the time of the IPO) and that we expect to be increasingly transitioned onto its platform. Lightspeed has seen success with new merchants, with attach rates rising from 40 per cent to 60 per cent-plus since the IPO. Lightspeed has already started looking at ways to monetize commerce and financial services beyond payments via the introduction of Lightspeed Capital and Lightspeed Subscriptions. Based on management commentary, we believe instant payouts and card issuing are the most logical next steps.”
With “expectations for continued share gains ahead,” Mr. Chiodo set a target for Lightspeed shares of US$70. The average target on the Street is US$66.40, according to Refinitiv data.
“Roughly one-third of Lightspeed’s new POS sales are coming from new business formations while two-thirds are competitive takeaways,” he said. “The vast majority of competitive takeaways are merchants upgrading from legacy solutions to a cloud-based solution, accelerated by COVID. Lightspeed estimates that 70 per cent or more of its addressable merchant base are still on legacy, on-premises solutions (industry estimates range from 50-80 per cent), leaving significant room for upgrades (vs. Micros, Aloha, Squirrel, etc.). Further, we expect Lightspeed to benefit from consolidation and its strong track record in acquiring smaller competitors (i.e., recent acquisitions of ShopKeep, Upserve, and Gastrofix, and its expectations for more ahead.”
Continuing to “see this moment in time as pivotal” for ImmunoPrecise Antibodies Ltd. (IPA-X), Industrial Alliance Securities analyst Chelsea Stellick said its “very positive” second-quarter financial results “highlight its continued operational progress.”
On Monday before the bell, the Victoria-based company reported revenue of $4.8-million for the quarter, up 50 per cent year-over-year and matching Ms. Stellick’s projection. Adjusted EBITDA rose to $795,000 from a loss of $63,000 a year ago, exceeding the analyst’s $695,000 forecast.
“The rise in revenue was primarily attributed to increased contract volume,” she said. “The Company has also invested $1.3-million in the quarter to expand its R&D initiatives aimed at introducing new services. We believe this will continue to add solid year-over-year growth to the top line.”
Seeing the company sitting in a “stronger” financial position as it works toward a Nasdaq listing in the U.S., Ms. Stellick, currently the lone analyst covering the stock, raised her target for its shares to $20 from $16, keeping a “buy” recommendation.
“We look forward to several catalyst events in 2021 that will propel this name forward,” she said.
Converge Technology Solutions Corp.’s (CTS-X) US$5-million deal for hybrid IT solution provider CarpeDatum Consulting is an “on-strategy, accretive acquisition,” according to Echelon Capital Markets analyst Rob Goff.
On Monday, Converge announce the deal for the Denver-based private firm, which is a national IBM Analytics consulting organization and Alteryx Preferred Partner. The acquisition is expected to close on Jan. 4.
“We expect the move to strengthen CTS’ relationship with IBM as it is a core component of CarpeDatum while introducing CTS to Alteryx,” said Mr. Goff. “The business is roughly evenly split across the three locations. The locations can leverage CTS’s operations in Denver (Corus360, Workgroup Connections), LA (KeyInfo) and its recently acquired Unique Digital in Texas.
“Earnouts reflect growth rates consistent with the going-in valuations with the implied double digit growth rates expected to be aggressively exceeded with cross-selling potential supporting an objective of doubling revenues and EBITDA run-rates over the next year. CTS holds the potential to double revenues and EBITDA exiting the next twelve months given the cross-revenue synergies.”
Mr. Goff said CarpeDatum’s financial planning software and high-end consulting will align with Converge’s analytics capabilities.
“As per norm, the deal was done on a non-competitive basis. There is full management alignment,” he said. “The company brings a heavier mix of IT Services relative to many past acquisitions as shown in the profits and EBITDA margins at 40.0 per cent and 26.9 per cent. The mix consideration makes the deal valuations and heavy earnout component (50 per cent) very attractive. The company has 20 years of deployment experience. The addition of CarpeDatum to the Converge analytics practice will give the Company an array of new capabilities regarding AI, analytics, and performance management to allow it to continue to scale and expand its current offerings throughout North America.”
Keeping a “speculative buy” rating for Converge stock, which he deemed a “top pick” for the fourth quarter of 2020, Mr. Goff raised his target to $4.90 from $4.60. The average is $4.69.
“We believe the Company stands to build further shareholder value given the positive momentum of cross-selling its product suite for organic growth while key vendor relationships bring efficiencies, referrals, and acquisition candidates. We are bullish towards the Company’s ability to maintain its acquisition and organic growth momentum,” he said.
Following better-than-anticipated fourth-quarter results, Industrial Alliance Securities analyst Neil Linsdell said EnWave Corp. (ENW-X) has “navigated a difficult fiscal 2020.”
The Vancouver-based technology company, known for its Radiant Energy Vacuum for the dehydration of organic materials, reported revenue of $10.8-million, down 33 per cent year-over-year but topping the analyst’s $9.9-million estimate.
“The decline was expected in part due to a different promotional program (buy one, get one) with Costco (COST-Q) versus last year’s coupon program,” he said. “REV equipment sales were also lower, as orders and commissioning activities have been impacted by travel restrictions and business disruptions. We did however see an improvement from FQ3, which was more significantly impacted by supply chain disruptions and lockdowns, specifically on Moon Cheese sales through Starbucks (SBUX-Q) in the U.S., as many locations restricted customer traffic in stores.”
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) and earnings per share of $20,000 and 1 cents, respectively, exceeded Mr. Linsdell’s projections of losses of $1.1-million and 1 cent.
“In the last couple of months, EnWave has continued to sign and advance partnerships, and book new unit sales, including with Nippon Trends Food Services (Dec. 1), for ramen noodles, purchasing a 10kW REV unit with a commitment for a 100kW unit within 12 months,” the analyst said. “Patata Fritas Torres (Nov. 30) in Spain will add a 100kW unit to its existing 10kW unit for dried cheese snacks. NuWave Foods purchased10kW and 60kW units for shelf-stable donuts and fritters, with a commitment for another 60kW unit within 18 months. Enwave’s pharma partner, GEA Lyophil, (Nov. 13) purchased a lab-scale unit for product trials and internal evaluation projects. The Company is also launching a toll manufacturing division (REVworx ) in March 2021 to further promote REV™ technology and help partners trial new products before committing to setting up in-house.”
“EnWave also recently announced a newTerpene Max process to deliver 10 per cent more retained terpenes than traditional drying. This followed the November 12 announcement of EnWave’s first U.S. cannabis royalty license with GentleDry Technologies, which provides drying solutions to legalized cannabis cultivators in the U.S. Pacific Northwest.”
Keeping a “buy” rating, Mr. Linsdell bumped his target to $1.80 from $1.75. The average is $1.56.
“Despite some setbacks/delays in machine sales, and a slow progression with Canadian cannabis partners, we are expecting an accelerated roll-out of Moon Cheese across multiple retail channels and partners to drive growth in 2021,” he said. “We also expect the Company to use its current $18-million cash balance and NCIB to support the share price if it weakens.”
Calling it an “innovative HIV drug developer,” Leede Jones Gable analyst Douglas Loe initiated coverage of Theratechnologies Inc. (TH-T) with a “speculative buy” rating.
“Theratechnologies is a diversified pharma firm, with two specialty drugs Egrifta and Trogarzo already approved and targeting niche HIV indications (HIV lipodystrophy and multidrug-resistant HIV1 infection, respectively) with substantial quarterly revenue already being generated, if a bit below our original expectations for both drugs,” he said. “Egrifta is a stabilized, fatty-acid-derivatized analog of growth hormone-releasing factor that has documented impact on reducing visceral adipose tissue deposition in HIV1-infected individuals. Trogarzo is a partnered (with Taiwan-based TaiMed Biologics (4147-TW)) anti-CD4 mAb that targets CD4-positive/HIV1-infected T-cells and mitigates HIV1 infection in patients that are no longer responsive to two or more of the small-molecule anti-retroviral drugs that are conventionally used to treat disease. Pivotal Phase III data were positive and FDA approval-enabling, and both drugs are projected to contribute positively to revenue/EBITDA throughout our forecast period.”
He set a $4 target for shares of the Montreal-based company. The average on the Street is $5.90.
In a separate note, Mr. Loe initiated coverage of Profound Medical Corp. (PRN-T) with a “buy” recommendation.
“The firm’s flagship device, branded as TULSA-PRO, is already approved for commercial use in all major medical markets contemplated in our model, specifically in North America and Europe,” he said. “Our diligence shows us that the device can emerge as a leading therapeutic option for treating localized prostate cancer and secondary prostate-localized diseases like benign prostatic hyperplasia (BPH), for which early clinical data are encouraging.
Mr. Loe set a target of $36.50, which exceeds the $29.34 average.
In other analyst actions:
* CIBC World Markets analyst John Zamparo raised his target for shares of Canopy Growth Rivers Inc. (RIV-T) to $1.60 from $1.50, keeping an “outperformer” rating. The average is $1.67.
“[Monday’s] transaction between Canopy Growth (CGC) and Canopy Rivers (RIV) is in our view an attractive trade that leaves both companies better off,” he said. “Rivers gets to monetize material but otherwise illiquid investments, protects itself against PharmHouse debt obligations, and is positioned for further investment in the cannabis industry, likely in the U.S. Meanwhile, Canopy Growth gets to increase its prospective ownership in TerrAscend, and better positions itself for an eventual U.S. legalization.”
* Cormark Securities analyst Garett Ursu upgraded Touchstone Exploration Inc. (TXP-T) to “top pick” from “buy” with a $4 target, up from $3.75. The average is $3.31.
* Canaccord Genuity analyst Robert Young raised his target for Dye & Durham Ltd. (DND-T) to a Street-high $53 from $50 with a “buy” rating. The average is $43.50.
* Canaccord’s Derek Dley increased his target for Great Canadian Gaming Corp. (GC-T) to $45 from $39, keeping a “hold” rating. The average is $38.50.
* Canaccord’s Carey MacRury moved his Endeavour Mining Corp. (EDV-T) to $46 from $45 with a “buy” rating. The average is $50.64.
* RBC Dominion Securities analyst Keith Mackey lowered his target for Calfrac Well Services Ltd. (CFW-T) to 10 cents from 20 cents with an “underperform” rating. The average is 32 cents.