Q3-2017 Updated - Valuation & Quarterly Thoughts:
The Company & Management continues to demonstrate promising results.
Overall;
- Top-line results were very impressive with 42%+ growth over last year (even with lower volumes due to hurricanes!)
- Gross margins increased from Q2-17 from 45.7% to 46.4% in Q3-17 (albeit lower than last year)
- SG&A did increase but is fairly in line on a proportionate basis to last Q at 27.5% of revenue vs. 27.2% in Q2 (reasonable given they are ramping up so many programs - many of which will hopefully be one-time cost as part of set-up)
- By my own EBITDA calculations (which is how I like to look at things) EBITDA was 752k this Quarter vs. 630k in the same quarter last year
-To obtain between 15-15.5M over the whole year the Company would need to have a Q4 of 4.4M to 4.9M which means the growth has to be between 44% to 60% over Q4-16. Not to mention the Company must have fairly good certainty on these numbers as we only have a month and a half left to the 2017FY
- Impressive program growth- currently at 202 programs and 1.5M+ cardholders up from 120 and 1M as of the 2016 year end. 2018 should be a spectacular year as the cardholder base has grown substantially which means a much larger client base generating higher overall revenues.
- Given the currently available information, my "reasonable targets" for the stock based on industry multiples are 1.42$ based on the 2017FYE and 2.08$ for 2018FYE.
_____________________________________________________________________
Valuation (including next FY estimates)
Current Fiscal Year Revenue: (46.5% growth) ~15.25M in 2017 (mid-point of guidance) / 2018FY estimate:21.3M (assume 40% growth)
Gross margins: 47% ~7.1M for 2017 / 10M for 2018
SG&A as a % of revenue 26.50% ~ 4.041M for 2017 / 5.55M for 2018
D&A and other: ~984k for 2017 / 1.2M for 2018
EBITDA:3.1M for 2017 / 4.4M for 2018
NI:2.1M for 2017 / 3.2M for 2018
F.d. share Count: 44.5M
Cash balance: 1.9M
LT debt:0$
**all multiples come from S&P capitalIQ from companies in a similar industry.
All methods use Median multiples to be more conservative (I have removed Visa and MC from the comps to not skew it to the upside).
Method 1 - EV/Sales:
EV/Sales Multiple:4.4x
15.25M*4.4=EV of 67.1M add back cash less debt=equity value of 69M/44.5M shares gives a share value of 1.55$/share
Method 2 - EV/EBITDA:
EV/EBITDA Multiple:16.5x
3.1M*16.5x=EV of 51.5M add back cash less debt=53.45M/44.5M= 1.20$/share
Method 3 - P/E:
P/E Multiple: 32.3x
NI of 2.1M/44.5M shares= 0.0472*32.3x=1.52$/share
Based on the above calculations an average target of ~1.42$/share is within reach if the company trades towards its fair value and hits its guidance. Using the same metrics, and continued top-line growth of 35-40% growth, a 2.08$ target would not be out of reach in the following fiscal year. (and if they got bought out - I could easily see someone taking them out between 3-5$/share)
Best of luck!
E.
The Company & Management continues to demonstrate promising results.
Overall;
- Top-line results were very impressive with 42%+ growth over last year (even with lower volumes due to hurricanes!)
- Gross margins increased from Q2-17 from 45.7% to 46.4% in Q3-17 (albeit lower than last year)
- SG&A did increase but is fairly in line on a proportionate basis to last Q at 27.5% of revenue vs. 27.2% in Q2 (reasonable given they are ramping up so many programs - many of which will hopefully be one-time cost as part of set-up)
- By my own EBITDA calculations (which is how I like to look at things) EBITDA was 752k this Quarter vs. 630k in the same quarter last year
-To obtain between 15-15.5M over the whole year the Company would need to have a Q4 of 4.4M to 4.9M which means the growth has to be between 44% to 60% over Q4-16. Not to mention the Company must have fairly good certainty on these numbers as we only have a month and a half left to the 2017FY
- Impressive program growth- currently at 202 programs and 1.5M+ cardholders up from 120 and 1M as of the 2016 year end. 2018 should be a spectacular year as the cardholder base has grown substantially which means a much larger client base generating higher overall revenues.
- Given the currently available information, my "reasonable targets" for the stock based on industry multiples are 1.42$ based on the 2017FYE and 2.08$ for 2018FYE.
_____________________________________________________________________
Valuation (including next FY estimates)
Current Fiscal Year Revenue: (46.5% growth) ~15.25M in 2017 (mid-point of guidance) / 2018FY estimate:21.3M (assume 40% growth)
Gross margins: 47% ~7.1M for 2017 / 10M for 2018
SG&A as a % of revenue 26.50% ~ 4.041M for 2017 / 5.55M for 2018
D&A and other: ~984k for 2017 / 1.2M for 2018
EBITDA:3.1M for 2017 / 4.4M for 2018
NI:2.1M for 2017 / 3.2M for 2018
F.d. share Count: 44.5M
Cash balance: 1.9M
LT debt:0$
**all multiples come from S&P capitalIQ from companies in a similar industry.
All methods use Median multiples to be more conservative (I have removed Visa and MC from the comps to not skew it to the upside).
Method 1 - EV/Sales:
EV/Sales Multiple:4.4x
15.25M*4.4=EV of 67.1M add back cash less debt=equity value of 69M/44.5M shares gives a share value of 1.55$/share
Method 2 - EV/EBITDA:
EV/EBITDA Multiple:16.5x
3.1M*16.5x=EV of 51.5M add back cash less debt=53.45M/44.5M= 1.20$/share
Method 3 - P/E:
P/E Multiple: 32.3x
NI of 2.1M/44.5M shares= 0.0472*32.3x=1.52$/share
Based on the above calculations an average target of ~1.42$/share is within reach if the company trades towards its fair value and hits its guidance. Using the same metrics, and continued top-line growth of 35-40% growth, a 2.08$ target would not be out of reach in the following fiscal year. (and if they got bought out - I could easily see someone taking them out between 3-5$/share)
Best of luck!
E.
