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Mar
8
The transformation of Sangoma Technologies to a services company sets it apart
Posted by: Gerry Wimmer
3/8/2020
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TOP 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.




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.


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).

Fast-forward 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.

Unified 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 networking experts.

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 opinion.

The Company has approximately 73.5 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.