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Sangoma Technologies' value becomes stronger with recent acquisitions
Posted by: Gerry Wimmer
6/1/2015
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TOP IDEAS: Sangoma Technologies Corp.'s (TSXV: STC) deployment of cash makes the company bigger and better with recurring revenue streams.




Investorfile's share price accumulation target of $0.40 for Sangoma Technologies Corp. was reached on April 24, 2014. For the record, we do not revise share price targets for our Investorfile Top Ideas - Small Cap Value Stocks. We have positioned our blog to be one of the first providers of a pragmatic perspective of a small cap company stock's potential worth, where there may be uncovered value that has been largely overlooked by the investment community.


Historically the Investorfile blog has been akin to recommending value-driven small cap stock investment opportunities in companies that hold generous cash positions. We always presume that one day the unrecognized value of the cash holdings will be utilized for a shareholder value-enhancing event such as an acquisition(s). Recently this held true for one of our Top Ideas: Sangoma Technologies Corporation (TSXV: STC - $0.305)

Sangoma Technologies is a leading provider of hardware and software components that enable or enhance Internet Protocol (IP) Communications Systems for both telecom and datacom applications. Sangoma's products, which include data boards, voice boards, gateways and connectivity software, are used in leading PBX, IVR, contact center and data-communication applications worldwide.

On December 31, 2014 Sangoma announced that it acquired all of the key assets of Schmooze Com Inc. and all the outstanding shares of RockBochs Inc. The Company paid an aggregate consideration of US$4 million in cash and issued 3,650,000 common shares. Included in the deals are contingent earn out considerations. On closing, Sangoma said that the acquired businesses generate combined between $4.5 and $5 million in annual revenue and, when integrated into Sangoma, are expected to be accretive to earnings immediately.

Schmooze, based in Wisconsin USA, is the primary developer of FreePBX® and the manager/sponsor of that open source project, one of the mostly widely used IP-PBXs on the planet, with millions of installs around the globe. (A PBX or private branch exchange is a telephone system within a business enterprise that switches calls between enterprise users on local lines while allowing all users to share a certain number of external phone lines.) Schmooze also offers chargeable, add-on commercial modules, support services, accompanying hardware to complement FreePBX and an integrated SIP trunking service (under the SIPStation brand name) to this huge base of FreePBX users.

RockBochs, based in Minnesota USA, offers Fax-over-IP monthly service, including developing its own FoIP customer premise equipment and offers semi-custom telecom appliances that allow customers to install their own communications software on a purpose-built server.

Recently Sangoma reported fiscal 2015 Q3 results. The Company's top line, gross margin, and profitability benefited significantly with the inclusion of the aforementioned acquisitions. Quarterly revenues were up 40% to $4.8 million and gross margins rose to 71% of sales. Sangoma’s EBITDA grew to $0.52 million and net earnings for the quarter jumped to $0.25 million or approximately $0.01 per share. The Company also generated $0.52 million of cash from operations in this quarter.

Notwithstanding the financial contributions noted above, the overall value of Sangoma’s operations is stronger post the two acquisitions. Here are three reasons why:

  1. Now 20-25% of Sangoma’s total revenues are recurring, derived from monthly service support business acquired from Schmooze and RockBochs.
  2. Sangoma hardware and software components which enhance Internet Protocol (IP) Communications Systems are now marketed to a captive customer base primarily located in USA, with the new business leads generated from Schmooze and RockBochs.
  3. Combined, Sangoma’s total annual revenue base has grown to about $20 million. A bigger company attracts a wider investor audience.

Since our first blog post about Sangoma (See: Sangoma Technologies: A small cap tech stock trading for value with prospects of growth) the stock had already exceeded our price accumulation target of $0.40 (last year) but has retreated since. That said, the recent quarterly results only reinforce the value proposition of this Company’s stock from its current trading levels. We continue to suggest that small cap investors should accumulate Sangoma’s stock up to a price of $0.40.

What has changed from last year?

Today Sangoma’s value proposition is stronger. This is due to the acquisitions which, combined, create a larger sales base and recurring service revenues for the Company. This makes Sangoma more valuable over the longer term (should it be acquired.) Under that assumption the stock price has much more upside potential beyond $0.40 then before.

The Company continues to preserve a strong balance sheet.

Sangoma Technologies has approximately 32.4 million shares outstanding.

Sangoma Technologies website: www.sangoma.com

Author Ownership Disclosure: TSXV: STC - Yes


Read Disclaimer:

This article is for informational purposes only. This article is based on the author's independent analysis and judgment and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock.

Investorfile.com is not engaged in an investor relations agreement with Sangoma Technologies Corporation nor has it received any compensation from Sangoma Technologies Corporation for the preparation or distribution of this article.

The author of this article has acquired and may trade shares of Sangoma Technologies Corporation through open market transactions and for investment purposes only.

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Hi Gerry, Your philosophy is focused on principles that have been shown to produce above average results over time and your record has clearly proven that. Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.