Cormark Securities analyst Gavin Fairweather sees “ample” opportunities for strong returns following a fourth-quarter selloff in Canadian tech stocks brought on by market volatility.
In a research report released Wednesday, he announced his “best stock ideas” for 2022, consisting of five companies.
They are:
* Sangoma Technologies Corp. with a “buy” rating and $35 target. The average target on the Street is $37.38.
“Q1 results were a strong start to F22, highlighted by 5-per-cent sequential growth in recurring services revenue, a rebound in product sales and strong margins,” he said. “After exceeding annual guidance in four of the past five years, we think the F22 guide will once again prove conservative. While the balance sheet remains underleveraged and ready for tuck-in M&A, with STC trading at 2.5-times sales we could also see it being a target in a rapidly consolidating cloud communications space.”
* Softchoice Corp. with a “buy” rating and $35 target. Average: $34.29.
“With more than 70 per cent of gross profit tied to software, cloud and services, Softchoice is well positioned to outperform its hardware-centric peers given its TAM’s structural growth rates and ongoing hardware supply-chain bottlenecks,” he said. “In addition to mid-teens gross profit growth in 2022, investors can expect a step change in margins and FCF generation owing to Project Monarch. Given its exposure, we think SFTC should trade at a premium to peers vs. its current discount and think outperformance in coming quarters can drive a rerating.”
* Sylogist Ltd. with a “buy” rating and $16.25 target. Average: $17.31.
“Efforts to reposition SYZ for organic growth are expected to pay dividends in 2022 with the firm targeting high single-digits growth overall,” he said. “Management is indicating that the sales pipeline is expanding and sales cycles shrinking, and we think SYZ could exit F22 with low double-digit organic growth. We also expect the firm to continue its M&A program given commentary that deal flow is “as good as ever” and access to $65-million of credit.”
* Thinkific Labs Inc. with a “buy” rating and $18 target. Average: $17.92.
“THNC’s growth is set to inflect higher near-term on paying client additions (increased marketing spend + conversion of recent free accounts) and ARPU expansion (upgrades + payments + pricing revisions),” he said. “Recent BuiltWith data confirms that usage of the Thinkific platform is accelerating. With the business expected to grow twice as fast as peers in C22 and the stock at half the multiple, we expect a large rerating in the shares.
* VitalHub Corp. with a “buy” rating and $5.15 target. Average: $4.73.
“The demand environment for VHI’s patient flow tools remains strong in the UK and Canada,” he said. “VHI had a successful Q4 for new contracts and is entering Q1 with a solid pipeline, underpinning our expectation for 15-20-per-cent organic growth. The M&A pipeline also remains active, and we expect news on this front in H1/21. We expect further scaling of the business and rising margins to catalyze a significant rerating in the stock.”