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Aug
9
In-Touch Survey Systems is a small cap technology stock that is a value buy investment opportunity
Posted by: Gerry Wimmer
8/9/2015
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TOP IDEAS: New recurring revenue streams are driving growth and profitability but In-Touch Survey Systems Ltd. (TSXV: INX) is still undiscovered by small cap investors.



In-Touch Survey Systems Ltd. (TSXV: INX- $0.28) is a very quiet stock. But the Company is also quietly increasing its sales and profits while buying back its own stock at undeniable value.

After a year of restructuring its business model, In-Touch Survey Systems’ (In-Touch) financial results are beginning to gain some momentum. This, after a newly appointed CEO’s plan to reverse the revenue decline over the last two years, by focusing on recurring revenue streams from software applications, licensing and user fees and launching its first ever SaaS (Software as a Service) offering for the Company called OpsMatrix.

Based in Ottawa, Ontario In-Touch develops managed mobile software technology and services for private businesses, governments and regulators to provide advanced interactive data capture and measurement solutions for large organizations striving to connect with prospects, customers, suppliers, employees and managers.

The Company’s products serve the need for mobile, real-time information about customer leads, customer feedback, operational compliance, employee feedback and new product analysis. In-Touch has developed comprehensive software platforms including EventMatrix, OpsMatrix and Unified Insights that provide for the rapid development of data collection programs such as lead capture at events, mobile checklists, audits and forms creation including real-time online reporting.

In-Touch believes that recurring revenues generated from its EventMatrix and OpsMatrix business segments are a key growth driver. EventMatrix is a software application providing event-marketing solutions including analytics, logistics and support. With thousands of event days and millions of customer interactions, EventMatrix works with Fortune 1000 brands, marketing agencies, government and military across North America. Launched last year, OpsMatrix, the Company’s first software-as-a-service (SaaS) offering, is a powerful mobile application which is designed to allow businesses to create unlimited mobile checklists and perform operational audits across all locations.

Based on the initial success of OpsMatrix, as well as expected growth occurring across all of the Company’s product lines this year, In-Touch Management has said that it anticipates revenues in 2015 to be significantly higher than 2014 ($8.35 million). In the first quarter of 2015, the Company reported revenues of $2.31 million, up 6% from the same period in 2014. Most notably, recurring revenues in Q1 grew 29% and account for about 20% of total revenues. The gross margin percentage on revenues was 56% for the quarter.

We like the growth profile for In-Touch. Better yet we like the Company’s profitability. Despite having lower revenues last year, In-Touch had remained EBITDA positive (on an adjusted basis) for all four quarters in 2014. In 2015, with the added recurring revenues streams, In-Touch reported adjusted EBITDA of $334,000 in Q1 with net earnings of $91,400 or $0.01 earnings-per-share.

For a small company, In-Touch has a decent balance sheet. Though not flush with cash, In-Touch maintains a solid working capital ratio of almost 2:1. The Company has a small amount of bank debt.

The Company has been buying back its own stock. Since December 2014, In-Touch repurchased and cancelled 635,000 shares through the Company’s Normal Course Issuer Bid. As of March 31, 2015 the Company reported that it had only 14.5 million shares outstanding.

By buying back its stock, In-Touch management must see an undeniable value in the Company’s shares. Given its growth prospects we recognize that same undeniable value in the stock and therefore we have added In-Touch Survey Systems Ltd. to our list of Investorfile’s Top Ideas – Small Cap Value Stocks.

Annualizing Q1 2015 results, In-Touch shares currently trade at Enterprise Value (EV) / EBITDA ratio of about 3.3, a market capitalization that is less than 50% of sales and an earnings per share multiple at 7 times. All said this is a very inexpensive stock.

Our recommendation for value-driven small cap investors is to accumulate stock of In-Touch to a price up to $0.55 per share, which is equivalent to about 6 x EV/EBITDA 2015 Q1 results, if annualized. This is a conservative accumulation price target because it assumes no growth from the past quarter while the Company’s Management is forecasting double-digit revenue growth for 2015 overall.

Management and directors of In-Touch combined own about 30% of the Company’s stock.

In-Touch Survey Systems website: www.intouchinsight.com.

Author Ownership Disclosure: TSXV: INX - 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 In-Touch Survey Systems Ltd. nor has it received any compensation from In-Touch Survey Systems Ltd. for the preparation or distribution of this article.

The author of this article has acquired and may trade shares of In-Touch Survey Systems Ltd. through open market transactions and for investment purposes only.

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Hi Gerry, Your philosophy is focused on principles that have been shown to produce above average results over time and your record has clearly proven that. Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.