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
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
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
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
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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.