A bought deal financing for CA$6 million is expected to maintain Quisitive Technology Solutions Inc.'s (QUIS:TSX.V) Canadian ownership for its Foreign Private Issuer (FPI) status with NASDAQ, analyst Rob Goff reported in a June 26 research note for Echelon Capital Markets.
The financing offers 17.2 million common shares at CA$0.35 per share. The underwriters have been given an overallotment option which could push the transaction, expected to close in July, to CA$6.9 million.
Annual measurement for the cloud technology company's FPI status is taken on June 30. Losing the status would have required the company to take on a U.S. auditor.
"We moved our (price target) to CA$1.25, reflecting a higher cost of capital given current market conditions and interest rates," Goff wrote, rating the stock a Speculative Buy.
"Looking forward, we believe expectations leave upside against double-digit organic growth prospects from IT Services and BankCard before considering the emerging contribution of PayiQ as its EBITDA drain turns around and revenue traction gains momentum exiting 2023," Goff wrote. "We look for QUIS to re-engage its inorganic growth aspirations within the next 12 months."
Employee Buying Contributed to Shift
Goff said QUIS employee buying of shares contributed to the ownership shift that threatened its FPI status. The company indicated it would use a portion of the proceeds to repurchase BankCard sales trailer fees, which represent payments to BankCard sales representatives for the ongoing business of clients.
Goff said Echelon continues to see QUIS as undervalued against consolidated valuations.
"QUIS is currently trading at 6.5x EV/NTM EBITDA, modestly above its three-year low of 5.9x," Goff noted. "We highlight that PayiQ represents an appreciating asset within QUIS where arguably consolidated valuations imply a negative by not factoring its EBITDA drain of (CA)$6 (million). Our consolidated 2023/24 EV/EBITDA valuation at 6.3x/5.0x would move to 5.2x/4.3x excluding the start-up costs associated with the PayiQ launch."
Cloud-Enabled Payment Platform Gaining Traction
PayiQ is the company's new cloud-enabled payment-processing architecture. Its commercialization is gaining traction entering 2024, Goff said, and he looks for investors to focus on the migration of BankCard merchants onto the platform, in addition to new clients.
Migration revenues could contribute as much as CA$5 million of PayiQ's revenues at more than 85% gross profit over the next 24 to 36 months, Goff wrote.
"We continue to see the potential for QUIS to acquire ISOs at 10x EV/EBITDA or 6-7x adjusted for savings upon migrating payments onto the PayiQ platform," Goff wrote. "Over the longer term, accretive IT Services acquisitions are expected to add shareholder value as QUIS leverages revenue synergies and scale efficiencies."
PayiQ commercialization into 2024 should focus investor attention on the potentially redefining upside of the platform, according to the note.
"We look for further contracts for IT Services to facilitate QUIS gaining scale and leverage while showcasing double-digit organic growth," Goff wrote. "We continue to look for positive read-throughs from the global cloud providers indicating strength in cloud demand."
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Disclosures for Echelon Capital Markets, Quisitive Technology Solutions Inc., June 26, 2023
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