TD UpgradeAs can be seen, they also raised their target (by a buck) to $7.50. Opened a position this morning. GLTA
VerticalScope Holdings Inc.
(FORA-T) C$4.33
Reddit Could be the Catalyst We Need
Event
In advance of Q4/23 results on March 14, and in advance of the proposed IPO of
Reddit, we are upgrading FORA shares to BUY from Hold.
Impact: POTENTIALLY POSITIVE
We have no proprietary views on the upcoming results, and we are not suggesting
that the results themselves will be a positive catalyst for the stock. However, we
would not be shocked if the results and/or outlook commentary are favourable versus
our estimates. Noting that our estimates remain below consensus (our unchanged
estimates for Q4/23 are shown in Exhibit 2), we have attempted to be conservative
with our margin forecast for FY2024 (39.4% as shown in our annual forecast table
in Exhibit 3) versus the meaningful y/y gain of 810bp (to 44.0%) that the company
achieved in Q3/23 (link to our recap of that EBITDA beat in Q3/23 is here: LINK).
Upside to our 2024E is even more likely, in our view, if VerticalScope is able to
monetize some of its first-party data by licensing it to companies looking to train
GenAI large language models (note that Reddit recently did a $60 million deal with
Google along these lines, and revenue from the News segment of Thomson Reuters
was seemingly boosted by about $35mm across Q4/23 and Q1/24 from similar
contracts).
TD Investment Conclusion
In our last report on VerticalScope (LINK), we cited concerns about good margin
expansion being insufficient to draw more investor attention to this arguably beaten-
up name (FORA down 28% in 2023, and down another 8% YTD), and we needed
to see evidence of more meaningful catalysts to spark interest. We believe the
proposed IPO of Reddit (more details on page two) could be just what the doctor
ordered. We have increased our target multiple to 7.0x 2024E EBITDA (previously
6.25x), which equates to 2.8x EV/revenue. Targeted upside of 72% to our new target
price (C$7.50) justifies our upgrade to BUY. Reddit is yet to achieve positive EBITDA,
but if we back out R&D expense, we estimate that a US$5 billion IPO valuation will
imply ~14.5x 2023A EBITDA (~6.2x 2023A revenue).