Canaccord--Casting Pearls to SwineO.K., where to begin...So Canaccord meets with management
"We met with management following Q4 results to discuss the outlook..."
And they publish a new report, lowering their target price. Then they proceed to tell us:
The VR/MR market, which represents ~70% of Spectra7's current business, has met heavier-than-expected headwinds in Q1/18."
Which we already knew from the press release a few weeks ago.
Then Canaccord explains that they fear this may affect funds until Data Center revenue starts coming in:
"This weakens the bridge to a ramp in DCI sales, which we model starting in Q4/18"
And they give a timeframe of Q4, even though they admit those revenues may come sooner:
"While there is no guarantee, we will look at returning to a more positive view if Spectra7 mitigates its balance sheet risk or if we see a faster path to a DCI ramp"
O.K., so that's the NEGATIVE stuff. But we Already Knew all this for the past several weeks.
Now let's get into what this Canaccord report really is. Some folks here are so hungry for news, but when they are presented with it, they cannot see it for what it is. This report is just that: NEWS. Canaccord met with Spectra7 management After the Q4 release, which means the past couple weeks.
There are a few bits of news in this report, yet all some folks here see is the lowered price target.
"Our 2019 revenue estimate is unchanged given our view of a ramp in DCI sales starting in Q4/2018"
So, although they are worried about 2018 because of a weak Q1, they don't see anything changed in the business as a whole going forward. And don't forget, as they stated above, even this 2018 estimate may need to be revised UP if:
"we will look at returning to a more positive view if Spectra7 mitigates its balance sheet risk or if we see a faster path to a DCI ramp"
And they admit that they are using a FAR lower valuation metric of Spectra7 vs. its peers:
"The valuation implies a multiple of 1.4x 2019E EV/Sales and includes a dilutive financing in Q3.
1.4 times sales. That's extremely low for a tech company. Most tech companies are valued at between 3 and 6 times sales. Canaccord also admits this:
"SEV trades at 1.3x 2019E EV/Sales versus peers at 3.4x"
So, even though they admit that, going forward, they see no negative impact for the second half of 2018, and 2019 is on track for the growth they have expected all along, they STILL hold Spectra7 down to a valuation of 1.4 times 2019 sales, when their peers are trading at 3.4 times.
Also:
"Silver lining: DCI interest - The company appears to be on track for its first DCI sale in Q4/18"
Although even that may be on the overly-conservative side as Data Center sales could quite likely begin earlier that Q4.
So, in summary, they state:
"We have revised our estimates as detailed in the table below. Our 2018E sales have come down modestly. We expect the Q1 VR/MR weakness to rebound and ultimately have no impact on the company’s DCI prospects. For this reason, our 2019E sales and gross margin have not changed."
So, as I see it, this report told us nothing new on the Negative side, as we already knew Q1 is coming in weak. But it DID tell us a few things about their valuation metrics, mainly that they are purposely valuing Spectra7 using lower metrics as compared to their peers, and they see no negative impact beyond Q1 2018 going into the second half of the year, and also into 2019.
This was just a bit of news folks, that's all.