 TOP IDEAS: Sangoma Technologies Corp.'s
(TSXV: STC) deployment of cash makes the company bigger and better with
recurring revenue streams.
Investorfile's share price accumulation
target of $0.40 for Sangoma Technologies Corp. was reached on April 24, 2014.
For the record, we do not revise share price targets for our Investorfile Top
Ideas - Small Cap Value Stocks. We have positioned our blog to be one of the
first providers of a pragmatic perspective of a small cap company stock's
potential worth, where there may be uncovered value that has been largely
overlooked by the investment community.
Historically the Investorfile blog has been
akin to recommending value-driven small cap stock investment opportunities in
companies that hold generous cash positions. We always presume that one day the
unrecognized value of the cash holdings will be utilized for a shareholder
value-enhancing event such as an acquisition(s). Recently this held true for
one of our Top Ideas: Sangoma Technologies Corporation (TSXV: STC - $0.305)
Sangoma Technologies is a
leading provider of hardware and software components that enable or enhance
Internet Protocol (IP) Communications Systems for both telecom and datacom applications. Sangoma's products, which include data
boards, voice boards, gateways and connectivity software, are used in leading
PBX, IVR, contact center and data-communication applications worldwide.
On
December 31, 2014 Sangoma
announced that it acquired all of the key assets of
Schmooze Com Inc. and all the outstanding shares of RockBochs Inc. The Company paid an aggregate consideration of US$4
million in cash and issued 3,650,000 common shares. Included in the deals are
contingent earn out considerations. On closing, Sangoma said that
the acquired businesses generate combined between $4.5 and $5 million in annual
revenue and, when integrated into Sangoma, are expected to be accretive to
earnings immediately.
Schmooze, based in Wisconsin USA, is the primary
developer of FreePBX® and the manager/sponsor of that open source project, one
of the mostly widely used IP-PBXs on the planet, with millions of installs
around the globe. (A PBX or private branch exchange is a
telephone system within a business enterprise that switches calls between
enterprise users on local lines while allowing all users to share a certain
number of external phone lines.) Schmooze also offers chargeable, add-on
commercial modules, support services, accompanying hardware to complement FreePBX
and an integrated SIP trunking service (under the SIPStation brand name) to
this huge base of FreePBX users.
RockBochs, based in Minnesota USA, offers
Fax-over-IP monthly service, including developing its own FoIP customer premise
equipment and offers semi-custom telecom appliances that allow customers to
install their own communications software on a purpose-built server.
Recently Sangoma reported fiscal 2015 Q3 results. The
Company's top line, gross margin, and profitability benefited significantly
with the inclusion of the aforementioned acquisitions.
Quarterly revenues were up 40% to $4.8 million and gross margins rose to 71% of
sales. Sangoma’s EBITDA grew to $0.52 million and net earnings for the quarter
jumped to $0.25 million or approximately $0.01 per share. The Company
also generated $0.52 million of cash from
operations in this quarter.
Notwithstanding the financial contributions noted
above, the overall value of Sangoma’s operations is stronger post the two
acquisitions. Here are three reasons why:
- Now
20-25% of Sangoma’s total revenues are recurring, derived from monthly service
support business acquired from Schmooze and RockBochs.
- Sangoma
hardware and software components which enhance
Internet Protocol (IP) Communications Systems are now marketed to a
captive customer base primarily located in USA, with the new business leads generated from
Schmooze and RockBochs.
- Combined,
Sangoma’s total annual revenue base has grown to about $20 million. A bigger
company attracts a wider investor audience.
Since our first blog post about Sangoma (See: Sangoma Technologies: A small cap tech
stock trading for value with prospects of growth) the stock had already exceeded our price
accumulation target of $0.40 (last year) but has retreated since. That said,
the recent quarterly results only reinforce the value proposition of this
Company’s stock from its current trading levels. We continue to suggest that
small cap investors should accumulate Sangoma’s stock up to a price of $0.40.
What has changed from last year?
Today Sangoma’s value proposition is stronger. This is
due to the acquisitions which, combined, create a larger sales base and
recurring service revenues for the Company. This makes Sangoma more valuable
over the longer term (should it be acquired.) Under that assumption the stock
price has much more upside potential beyond $0.40 then before.
The Company continues to preserve a strong
balance sheet.
Sangoma Technologies has approximately 32.4
million shares outstanding.
Sangoma Technologies website: www.sangoma.com
Author Ownership Disclosure: TSXV: STC -
Yes
Read Disclaimer:
This article is for informational purposes only. This article is based on the
author's independent analysis and judgment and does not guarantee the
information's accuracy or completeness. The information contained in this
article is subject to change without notice, and the author assumes no
responsibility to update the information contained in this article. The
information contained within this article should not be construed as offering
of investment advice. Those seeking direct investment advice, should consult a
qualified, registered, investment professional. This is not a direct or implied
solicitation to buy or sell securities. Readers are advised to conduct their
own due diligence prior to considering buying or selling any stock.
Investorfile.com is not
engaged in an investor relations agreement with Sangoma Technologies
Corporation nor has it received any compensation from Sangoma Technologies
Corporation for the preparation or distribution of this article.
The author of this article has
acquired and may trade shares of Sangoma Technologies Corporation through open
market transactions and for investment purposes only. |
