Eight Capital - cantechletter.com - no new deals in H1/2023 By Staff Filed under: All posts, Analysts, IT Stock: cts Converge Technology Solutions keeps Buy rating with Eight Capital
Canadian IT and Cloud Solutions provider Converge Technology Solutions (Converge Technology Solutions Stock Quote, Charts, News, Analysts, Financials TSX:CTS) saw its share price drop significantly on Wednesday, a day after reporting preliminary fourth quarter 2022 numbers. Underwhelming, was the assessment from Eight Capital analyst Christian Sgro, who delivered an update to clients on Wednesday where he maintained a “Buy” rating on the stock and a $10.00 target price.
Converge, which offers solutions such as advanced analytics, application modernization, cloud platforms, cybersecurity and digital infrastructure, announced on Tuesday preliminary financials for its Q4 2022, featuring net revenue of $765.3-$777.6 million for a year-over-year improvement of approx. 53 per cent. Adjusted EBITDA is expected at $40.8-$44.2 million, representing a year-over-year projected increase of 23 per cent.
The company said its bookings backlog grew by $52 million sequentially to $555.7 million, with the company noting the impact of ongoing supply chain challenges.
“Despite macro and short-term supply chain headwinds, we have started 2023 strong from both an order and delivery standpoint,”said Shaun Maine, CEO, in a press release. “At the same time, we invested approximately $8 million in 2022 to build out a dedicated team to accelerate the integrations of the 19 acquisitions we’ve made over the last two years. With no new acquisitions planned in the first half of 2023, we expect to demonstrate the organic strength of the business.”
Sgro said the numbers looked to be coming in below consensus, with the $771.5 million revenue midpoint comparing to the Street’s forecast at $791.5 million and Sgro’s own call at $756.9 million. Meanwhile, adjusted EBITDA at a midpoint of $42.5 million would also be below the consensus at $51.9 million and Eight Capital at $53.0 million.
Sgro called the impact of the preliminary report a negative and he noted that, as expected, management provided no further news on the previously announced strategic review.
“We continue to see the SMB end market as more resilient although it is not immune to extended sales cycles, with Converge pointing to some slipped deals. Margins and CFO missed our expectations, and we expect stable improvement in 2023 as assets are integrated and the cost base is rightsized,” Sgro wrote.
“The announced agreement to acquire the outstanding interests in REDNET could streamline conversations, in our view. The company noted that there are no plans otherwise for new acquisitions in H1/23, which will bring organic trends more clearly into focus as we move through the year,” he said.
At the time of publication, Sgro’s $10.00 target represented a projected one-year return of 83 per cent.