TOP IDEAS: Sangoma Technologies Corp. (TSXV: STC) still has
tremendous upside potential for small cap investors given its thrifty market
valuation, revenue growth, profits and outlook.
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
This is the third Investorfile blog post highlighting
Sangoma Technologies Corp. (TSXV: STC - C$0.75) this year. Given the Company’s
fiscal 2017 results and financial guidance for fiscal 2018, this stock
continues to deserve our attention.
Sangoma Technologies delivers Unified Communications
solutions for SMBs, Enterprises, OEMs, Carriers and service providers. The
Company’s scalable offerings include both on-premises and cloud-based phone
systems, telephony services and industry-leading Voice-Over-IP solutions which,
together, provide seamless connectivity between traditional infrastructure and
new technologies. Sangoma's products and services are used in leading PBX, IVR,
contact centre, carrier networks and data communication applications worldwide.
Unified Communications (UC) is
a fast-growing market within the telecommunications industry. UC implies the
integration between modes of communications like text messages, cell phone,
emails, conference calls, instant messaging, screen sharing, etc., as well as
being able to switch effortlessly between them to enhance the exchange of
information and ideas for a business operation.
Last week, Sangoma Technologies released annual results for
fiscal 2017. Sangoma reported that revenues jumped 27% in fiscal 2017 to C$26.9
million. For this fiscal year, EBITDA almost doubled to C$2.6 million with much
higher net earnings at C$800 thousand or C$0.023 on a per share basis. Adjusted
cash flow from operations of $2.89 million was up 75% from the $1.67 million in
fiscal 2016. The results exceeded the Company’s financial guidance.
In our blog post one year ago (See: Sangoma
Technologies transformation makes it bigger and better for a profitable 2017),
we identified the positive impact that the Company’s acquisitions are having on
revenue growth, operating leverage and profitability.
Since that post, Sangoma had made two additional
acquisitions. Of particular note is the acquisition of VoIP Supply LCC (closed
on July 1), which is expected to add about C$15 million to the Company’s
revenue base. With the inclusion of VoIP, the Company-provided financial
guidance for fiscal 2018: Revenues of C$46 million and EBITDA of C$4 million. Therefore revenues and EBITDA are projected to be significantly higher than last year.
Year-to-date, Sangoma Technologies' stock price is up 97%
and 257% since the Investorfile blog first recommended this stock (See: Sangoma
Technologies: A small cap tech stock trading for value with prospects of growth)
as one of its Top Ideas. That said, we think that the stock price of
Sangoma still has tremendous upside potential for small cap investors.
Here are three reasons why:
1. Sangoma’s stock valuation is
still very cheap for a growth company.
Based on the
Company’s revenue and EBTIDA guidance for fiscal 2018, Sangoma’s stock trades
at Enterprise Value (EV) / EBITDA ratio at about 6.25 times and at a multiple
which is equal to only 55% of its annual revenue base.
2. Expect more acquisitions to
Over the last several years the Company has made five acquisitions, and each
has been accretive to growing revenues and profits. Sangoma still maintains a
strong balance and has the available liquidity to make more acquisitions.
3. The Company’s market
capitalization will be on the rise.
As Sangoma’s market capitalization grows higher, it will begin to attract a
wider investor audience. At that point, more institutional investors will buy
the Company’s stock, which will drive up share valuation and trading multiples.
Of note, we are not the only one that who thinks Sangoma’s
stock is still a good buy. Beacon Securities, which initiated research coverage
on the Company earlier this year, has a 12-month target price of C$1.55. Their opinion on the stock price implies 106% upside potential from current
The Company has approximately 33.5 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 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.