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Oct
30
Sangoma Technologies transformation makes it bigger and better for a profitable 2017
Posted by: Gerry Wimmer
10/30/2016
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TOP IDEAS: Growth in recurring revenues from Cloud-based and SaaS offerings has almost doubled the size of Sangoma Technologies Corp. (TSXV: STC), making it a more attractive investment for small cap investors.




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.


Much has changed since the Investorfile blog first introduced Sangoma Technologies Corp. (TSXV: STC - $0.35) to our list of Top Ideas in 2014 (See: Sangoma Technologies: A small cap tech stock trading for value with prospects of growth.) Yes, the Company’s stock price is about 70% higher since our introductory blog post, but the biggest change is the size and composition of Sangoma Technologies' revenue base, which now exceeds C$21 million annually.

Sangoma Technologies is a leading provider of hardware and software components that enable or enhance Voice over Internet Protocol (VoIP) 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, call-center and data-communication applications worldwide.

The Company recently reported financial results for fiscal 2016, the 12-month period that ended on June 30. The biggest change was revenues, which grew 30% to C$21.2 million. The full year revenue growth was a combination of organic growth and acquisitions.

Sangoma Technologies has a sizable revenue base generated from different sources. Over the past two years the Company’s Management has directed its efforts to build out a services business that earns more predictable recurring streams of revenues. Today over 40% of Sangoma’s sales are derived from Software as a Service (SaaS) or Cloud-based services. New and legacy hardware products make up the balance.

This past year the Company’s primary focus was investing in a Cloud-based Hosted PBX service offering. A PBX (private branch exchange) is a telephone system within an enterprise that switches calls between enterprise users on local lines while allowing all users to share a certain number of external phone lines. As such Sangoma Technologies offers a PBXact Unified Cloud Communications (UCC) service which delivers cloud-based telephony hosted services for a monthly fee to small and medium-sized businesses. The feature-rich UCC solution can be tailored to meet a business’ telecommunication demands while removing the burden for an enterprise to own and maintain a costly PBX solution on site.

Other Cloud services Sangoma Technologies is selling: SIPStation Sip Trunks, which use a high-speed Internet connection to provide telephone service, eliminating the need for traditional phone service and FAXStation technology, an error-free faxing solution for true analog fax experience without the high cost of an extra line.

The build-up of Sangoma Technologies' services business came with some one-time costs. In fiscal 2016 the Company made investments in R&D and infrastructure to position Sangoma as a service provider. Sales & marketing expenses were also higher to promote its new service offerings. As a result of these expenses,the Company earned only a modest profit $110,000 or $0.004 per share in its last fiscal year. But the benefits of investments should result in future profit growth. As such, Sangoma Management’s outlook states that it expects that the Company’s profitability will strengthen in fiscal 2017, starting in Q1 (to be reported in late November.)

Based on the recent financial results, the Investorfile blog reiterates its buy recommendation of the Company’s shares by suggesting that small cap investors continue to accumulate Sangoma’s stock up to a price of $0.40 from its current trading levels. We like that Sangoma Technologies is a bigger company today with a more predictable revenue stream. That said the Company’s share valuation is still not expensive. We also feel the stock may be close to an inflection point when shares begin to trade at a higher multiple.

Longer term we also see further upside in the stock price (beyond our target) should Management leverage the Company’s profit growth potential. Also the Company might make more acquisitions, which could be another catalyst for a higher stock price going forward.

Sangoma Technologies continues to preserve a solid balance sheet.

Of note, a new investor had recently accumulated over 14% of the Company’s outstanding shares at an average stock price near current trading levels. This investment was disclosed in a news release.

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.

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Gerry: Thanks for small cap stock suggestions over the past 5-years. Your record is very impressive and your analysis has been excellent over the years. I think small investors (and fund managers) should pay much more attention to your work. I look forward reading your blog over the next 5-years!