Excerpts from TD Securities ReportJustification of Target Price
We are initiating coverage of AcuityAds with a BUY rating and $37.00 target price. Our target price is based on a 26x 2022E EV/Net revenue multiple. Furthermore, we use a longer term DCF model to support our EV/Net Revenue valuation approach (Exhibit 5), with a terminal multiple of 18x EBITDA and a discount rate of 10% leading us to a similar target valuation.
Management has indicated that a listing on the NASDAQ could be coming soon, either with or without a modest equity raise. Listing in the U.S. could help increase investor awareness over time and potentially close some of the valuation gap between AT and TTD, in our view.
In our opinion, investors in smaller cap names such as this, with high growth but also high valuations, are looking for meaningful upside potential in order to offset any risks beyond the control of management (such as multiples for comps declining, or privacy regulations changing access to the data needed for ad targeting). So we put forward that a potential blue sky valuation for AT shares over the next 12-18 months could be $54, if we apply the current TTD P/Sales multiple (35x) to an upward scenario of net revenue for Acuity in 2022 (10% above our base case 2022E revenue estimate).
We have minimal concerns about balance sheet risk or management execution or the integration of acquisitions. Our channel checks with Acuity customers leave us confident that it offers good quality products with excellent service. Competing against larger players that might be able to develop better technology than Acuity is embedded in our risk rating, but we are confident that its current services are in high demand, and that there should be room going forward for both walled garden giants and independent DSP players in the programmatic advertising space.
GLTA