RE:RE:Canaccord Genuity What an exciting day to be a trader. Maybe there will be some volume on Quarterhill today.
Good news did nothing for the stock. Let's see what bad news does. Historically speaking when the top rated analyst on a stock takes the hatchet to the target price and moves it to the equivalent of a sell, it is not good. Cannacord only has 15% of its stocks that it covers rated as a hold or a sell. This is a major demotion into the bottom 15% of stocks in its coverage universe. It is even rarer to see an investment banking client make a move like this.
The fascinating thing about their update is that they price QTRH at 12X EV/EBITDA, which is the highest of all small cap ITS companies. They also highlight a slight problem, which is the 2023 EV/FCF is now @ 75X. They are forecasting that the business will not generate much cash. As I've repeatedly said, EBITDA does not mean cash. They finally get it, too.
They also highlight that the debt needs to include the patent financing liabilities as these are promises to the patent partners which are the equivalent of debt. The company only has $40M of cash net of all liabilities. And the business is not going to organically generate cash.
So... the only option here is an equity raise to complete another ITS acquisition.
And at 12X EBITDA it makes sense to do so. Hence the marketing blitz the last couple of weeks.
Expect another ITS acquisition timed with a heavily dilutive down round equity financing.