VerticalScope Holdings Inc T.FORA

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Raise their target to $35.00. GLTA

VerticalScope Holdings Inc.

(FORA-T) C$25.04

A Solid Post-IPO Quarter

Event

Q2/21 results.

Impact: SLIGHTLY POSITIVE

Headline results were basically in-line (see page two), but when we factor in the two points below, we were pleased with VerticalScope's first quarter as a public company. Our target price increases C$1.00 owing to slightly higher annual forecasts and an updated USD/CAD assumption of 1.25 (versus 1.22 previously).

1. Non-recurring items impacting Q2 EBITDA: It was disclosed on the call and in the MD&A (but not in the press release) that Y/Y EBITDA growth would have been 33% (versus only 8% reported) if adjusted for FX impacts ($381k), and wage subsidies (CEWS) received in Q2/20 ($764k).

2. Revenue outlook commentary for H2: When asked if 19% organic revenue growth can be sustained in H2/21, management indicated that strong growth is expected to continue, in part owing to $200k-$500k in typical advertising spend by automotive and powersports clients that has been deferred from Q2/21 owing to the global inventory and chip supply issues. For perspective, we now model organic revenue growth at only +13%/+3% in Q3/Q4.

TD Investment Conclusion

We see no justification for the share price decline (albeit on small volume) subsequent to the Q2/21 release and we strongly reiterate our BUY rating. Our bullish thesis on FORA was never predicated on Q2/21 results, and in fact, we highlighted in our initiation report (LINK) that Y/Y comparisons could face headwinds from both FX fluctuations and pandemic distortions (notably an unusual spike in fitness equipment e-commerce revenues in Q2/20). That being said, 19% organic revenue growth and 33% fully adjusted EBITDA growth was by no means a weak print. The acquisition engine is just getting started post-IPO (three small deals so far in Q3), and also we expect cleaner organic growth comparisons in the next few quarters. The key comp, in our view (FUTR – see comp table in Exhibit 3), is up another 17% since we initiated on VerticalScope (now up 109% YTD) and we continue to believe that FORA shares will re-rate higher as we start to see consensus estimates rise via organic and inorganic execution by management.