WeCommerce Holdings Ltd.
(WE-V) C$12.03
Upgrading to BUY on Valuation and Potential M&A Activity Event
We are resuming coverage following the closing of the equity deal. WeCommerce issued 2,810,000 shares at $12.00 from treasury for gross proceeds of $33.7mm. We are moving to BUY, given WeCommerce's low relative valuation and greater potential for M&A, now that the balance sheet has been delevered.
Impact: NEUTRAL
Undervalued. WeCommerce's NTM EV/Revenue multiple has declined ~2.4x since our last earnings update on May 31, 2021 and is now trading at 8.5x NTM revenue, well below the ecommerce peer group at 19.6x. The ecommerce peer group's multiple has expanded by ~3.2x and Shopify by ~7.9x over this time frame. Even when we compare recurring revenue multiples, WeCommerce is trading at 28.5x pro forma LTM recurring revenue, while peers are trading at 48.0x. WeCommerce's valuation has continued to trend downwards despite completing a large acquisition, bolstering its balance sheet with the recent equity offering, and benefitting from positive announcements at Shopify Unite last week. We believe that the stock is currently undervalued, presenting a good opportunity to buy the stock.
Ready for more acquisitions. We estimate that WeCommerce has $36.6mm of gross cash following the equity offering and the Stamped acquisition. With ~$50.4mm of gross debt, we estimate that WeCommerce has $13.8mm of net debt for a net debt/EBITDA leverage ratio of ~1.0x, down from ~3.2x. We believe that management is comfortable with 3.0x leverage and is willing to go up to ~3.5x following an acquisition. We estimate that WeCommerce can deploy up to ~$40mm of capital, if we assume that acquisitions are completed at similar transaction multiples as Stamped, have a 40% EBITDA margin, and the company levers up to 3.5x. It has an untapped US$20mm revolver and US$20mm delayed-draw term loan, giving the company access to an estimated $86.6mm of capital. At current valuations, we do not believe that the market is pricing in any acquisitions, while the company has earmarked $25mm of the equity deal for M&A.
TD Investment Conclusion
Upgrading to BUY and increasing our target price to C$22.00. We believe that the company has far more appealing metrics following the Stamped acquisition and expect future acquisitions to demonstrate the opportunities in the Shopify ecosystem.