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
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
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.
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
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
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
Sangoma Technologies website: www.Sangoma.com
Author Ownership Disclosure: TSXV: STC - 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 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
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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.