IDEAS: The growth in recurring revenues generated from becoming a service provider of
Unified Communications solutions and SaaS type offerings continues to make Sangoma
Technologies (TSXV: STC) a compelling
small cap investment.
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.
Investorfile saw the transformation coming. That is, Sangoma
Technologies was no longer just a Voice over Internet Protocol (VOIP) hardware
provider and the long-term growth would come from the Company’s new cloud service offerings. We communicated this in our blog dated
October 2016 as one of Investorfile's Top Ideas when the stock was trading at C$0.35 per share (See: Sangoma Technologies' transformation makes
it bigger and better for a profitable 2017).
three-and-a-half years from that post, and the growth in recurring revenues generated
by Sangoma Technologies as a service provider, has
become the backbone of its business.
Today, Sangoma Technologies (TSXV: STC – C$2.10)
describes itself as a trusted leader in
delivering value-based Communications as a Service (CaaS) solutions for businesses
of all sizes, service providers and OEMs. Sangoma’s offerings include
Unified Communication (UCaaS) and Call
Center as a Service
(CCaaS) business phone systems, both on-premise and in the cloud,
Communications Platform as a Service (CPaaS), SIP trunking services (TaaS), and
telephony hardware which can also be deployed as a service.
Communications (UC) is a fast-growing market within the telecommunications
industry. UC implies the integration between modes of communications such as
text messages, cell phone, emails, conference calls, instant messaging, screen
sharing, etc., as well as being able to switch effortlessly between them to
enhance the exchange of information and ideas for a business operation
While Sangoma says its products and
services are used in leading PBX, IVR, contact centre, carrier networks, and
data communication applications worldwide, the service side of its business is
the fastest-growing segment, now making up about 50% of its annual revenue base
of approximately C$130 million. What makes the growth in Sangoma’s
services business compelling for small cap investors is that it contributes to higher
profitability (from high margins) and greater revenue predictability from
longer-term service contracts that generate recurring monthly sales.
Sangoma’s management has said
that it is committed to growing its operations as a service provider. As such,
in October 2019, the Company acquired VoIP Innovations, LLC, a privately held,
Pittsburgh-based technology company. Sangoma describes VoIP Innovations as a
company that specializes in wholesale SIP trunking offered primarily to
resellers, service providers, MSPs and call centre customers across North America, utilizing a recurring revenue model for
90% of its sales generated. VoIP Innovations also recently launched its new,
strategic Communications Platform as a Service (or CPaaS) product. Sangoma says
that CPaaS is an exciting new product category, receiving significant attention
from customers and investors alike, that enables developers to add
communication capabilities (such as voice, video, messaging, etc.) to their
software and web applications without having to be communications nor
While Sangoma management has
acknowledged in its recent quarterly financial report that one-time product
sales maybe softer this fiscal year from the global headwinds due to the
COVID-19 outbreak, recurring revenues should continue to grow both organically
and through acquisitions which will contribute to higher profitability going
forward. We note that publicly traded companies, which generate growing
streams of recurring revenue, will ultimately see their stock trade at higher
multiples and a higher stock price over time. This sets Sangoma Technologies apart as a small cap investment
opportunity for the stock’s upside from its current price trading range, in our
has approximately 73.5 million shares outstanding.
Author Ownership Disclosure: TSXV: STC -
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.