NowVertical Group Inc. (NOW:TSX.V; NOWVF:OTC), having achieved Q4/22 results in line with expectations, is "poised to deliver positive EBITDA and double-digit organic growth," reported Echelon Capital Markets analyst Rob Goff in an April 21 data analytics note. This big data technology company provides industry-specific software and services to help entities affect vertically intelligent transformations.
"With demonstrated organic and inorganic growth, advancing scale and profitability, we look for an aggressive revaluation of the shares," Goff wrote. "NowVertical's track record and synergies warrant confidence that it will be successful."
Attractive Potential Return
Accordingly, Echelon has a target price on NowVertical that projects a significant 224% possible return for investors. The target is CA$1.20 per share, whereas the Canadian software company's current share price is about CA$0.37. NowVertical remains a Speculative Buy.
"Our bullish thesis looks for NowVertical to rapidly emerge as a midmarket-focused, fusion analytics firm leveraging its purpose-built solutions for high-value, data-driven decision-making with a focus on strategic verticals where it can build vertical intelligence and refined analytics capabilities," explained Goff.
EBITDA Drain Trends Downward
During Q4/22, NowVertical generated US$8.4 million (US$8.4M) in revenue, near Echelon and the Street's estimates of US$8.6M and US$8.9M, respectively, Goff reported.
Gross profit was US$3.9M, the same as Echelon's estimate and higher than consensus' US$3.7M forecast.
EBITDA was (US$0.1M) whereas Echelon and the Street both expected it to be US$0.
"We note the scaling impact behind NOW’s move to break even EBITDA on the quarter, having seen the EBITDA drain move from US$0.96M in Q1/22 to US$0.6M in Q2/22, with the drain at US$0.3M in Q3/22," noted Goff.
NowVertical ended Q4/22 with US$3.8M in cash and net debt of US$11.7M. (These figures have since changed.)
Acquisitions Afford Growth
Between Q3/22 and now, April 2023, NowVertical acquired three companies: A10 Group, Acrotrend, and Smartlytics. Growth from its purchases is expected to reach about 20%, Goff wrote, once "revenue synergies from cross-selling gain traction."
The Canadian software firm intends to continue with this growth strategy. It is targeting companies with US$10M-plus of revenue and acquisitions that are immediately positive free cash flow accretive, Goff pointed out.
"NowVertical's recent moves to raise additional debt and equity capital leave [the company] positioned to execute against its mergers and acquisitions pipeline put at about US$90M," wrote Goff.
Upcoming Catalysts
Goff reiterated the events that could move up NowVertical's stock price. They are double-digit organic and backlog growth, positive EBITDA, and accretive acquisitions.
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