RE:Canaccord Increases "BUY" Target Price to $18 from $17/shareCanaccord commentary:
After the closing of its $35-million convertible offering, Canaccord Genuity Aravinda Galappatthige sees “a better investment thesis” and “a cleaner path” for the management of BBTV Holdings Inc. (BBTV-T)
“Despite the potential dilutive impact, we believe that investors of BBTV can be quite encouraged by this refinancing as it removes a key overhang for the stock and for management, and incidentally offers the company an additional $17-million to pursue its growth,” he said. “The previous capital structure was problematic due to the substantial RTL debt that was maturing as close as July 2022, and the conversion price was essentially dependent on the immediately preceding share price. This created the risk of a vicious cycle where a declining share price increased the potential dilution upon conversion which in turn compromises the share price, and on and on. With the maturity now five years away, this situation has been arrested.
“Equally important, the company should be better financed to pursue its growth plans, including incremental investment in driving forward the deployment of Plus Solutions and M&A. Recall, despite the large IPO last year of $170-million, BBTV only actually received $2-million of that for its own balance sheet. In fact, our understanding of BBTV’s history suggests that they have had to operate on a fairly restrictive financial capacity through much of its entire existence. With BBTV expected to exit Q2/21 with over $21-million in cash and adj EBITDA likely to improve in H2/21, we believe management would have significantly more flexibility to push through with its strategies, including the ramp up of direct sales.”
Mr. Galappatthige said he’s looking for an “uptick” through 2021 and beyond for the Vancouver-based media technology company’s Plus Solutions content management offering, which helps manage unauthorized fan uploaded copies of content. He called it a “cornerstone” of BBTV’s strategy.
“Management reiterated its objective of doubling the U.S. sales team by Q2, and we have been seeing higher sales related opex in the financials,” he said. “Given BBTV’s substantial audience size, it’s very much a case of expanding capacity within sales. We also note the significant long-term upside considering the fact that BBTV’s partner count is just 5,000 in a landscape of 2 million content creators. Given the size of the opportunity, over time, we suspect that BBTV may consider a path of a more basic self-serve product to capture a larger share of the market, including the lower end. This can supplement its current Plus Solutions driven growth.”
Reaffirming his “buy” recommendation, Mr. Galappatthige raised his target by $1 to $18. The average is $18.64.