TOP IDEAS: Sangoma Technologies (TSXV: STC) and its Communications-as-a-Service business has plenty of upside and so does the stock price for many reasons.
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.
Does the Investofile blog always seem to be bullish about the upside potential for the stock price of Sangoma Technologies? Answer: Yes.
To date, after 12 prior blog posts, the first such post with this stock trading at C$0.21 (See: Sangoma Technologies: A small cap tech stock trading for value with prospects of growth), do investors continue to make money after each successive Investorfile update? Answer: Yes.
Will this trend continue? We say: Yes.
Sangoma Technologies Corp. (TSXV: STC – C$2.71) is a trusted leader in delivering value-based Communications-as-a-Service (CaaS) solutions for businesses of all sizes. According to the Company, the value-based communications segment includes small businesses to large enterprises which are looking for all the advantages of cloud-based communications at a fair price.
The majority of Sangoma’s CaaS business is offered to customers under monthly, yearly, or multi-year contracts and include: Unified Communications as a Service (UCaaS), SIP Trunking as a Service (TaaS), Communications Platform as a Service (CPaaS), Fax as a Service (FaaS)Meetings as a Service ( MaaS ) and Device as a Service (DaaS).
Today, Unified Communications (UC) and UCaaS is Sangoma’s largest business segment. Sangoma's UC solutions are business communication systems (PBX’s) with advanced UC features, such as presence/chat, conferencing, mobility, fax, and more) that can be deployed on-premise or hosted in the Cloud, allowing businesses to select the best option for their respective needs. The Company says that UC systems, because of their mobility features (such as having the business phone number ring on an app on a smartphone and/or desktop) and instant messaging capability, enable remote work and work-from-home much more efficiently. Sangoma’s UC solutions are deployed globally, with over 2 million licensed seats of its commercial Unified Communication solutions.
Over the last several years, Sangoma Technologies has made the successful transformation to a services company. Recurring revenues have become the backbone of its business, as the majority of revenues and revenue growth are generated from the Company’s CaaS offerings. Today Sangoma annual revenue run rate is close to C$150 million, earning EBITDA margins between 17%-20% on overall sales. The Company also has a very strong balance sheet.
It should become clear to readers of this blog post that Investorfile is of the opinion that Sangoma’s stock price is still largely undervalued. As said in the title of this post, we do we think Sangoma Technologies' stock price could reach the C$5.00 level within the calendar year of 2021. This implies there is 85% upside potential from current trading levels in less than 14 months. Our reasoning:
1. With C$93 million in cash, expect a major acquisition to accelerate growth.
If history repeats itself (and it has for Sangoma), the Company is cashed up to make another acquisition. Over the last five years, Management has made over five acquisitions and each larger in scale. We envision the next acquisition will grow the revenue base to over C$200 million annually with the majority of revenues being recurring.
2. The stock price will trade at higher revenue multiples.
Currently the stock price of Sangoma trades at approximately two times Management-guided revenues for fiscal 2021. We note that Sangoma’s peer group trade at much higher revenue multiples. With the inclusion of a major acquisition (that we anticipate), Sangoma’s stock will be re-rated to valuation closer to three times revenues (on C$200 million), which equates to a stock price in excess of C$5.00 based on the Company’s current capital structure.
3. The Company’s stock will become listed on a more senior stock exchange.
With a current market capitalization of over C$300 million (and growing to over C$500 million in 2021), Sangoma Technologies is eligible to move its stock listing to a more senior exchange. We believe Sangoma’s Management will apply to list the Company’s shares on the TSX Exchange 2021 and/or NASDAQ by 2022. Either move will increase the stock’s exposure to a larger group of investors, thus increasing the trading multiples for the share price.
We would be remiss not to mention that the uncertainty of COVID-19 and the world economy could derail the timing of some of our projections. But, that said, Sangoma Technologies to date has proven that its business is weathering COVID-19 better than most, and the longer-term demand for the Company’s Communications service offerings looks stronger than ever post-COVID-19 too.
The Company has approximately 111 million shares outstanding.
Sangoma Technologies website: www.sangoma.com
Author Ownership Disclosure: TSXV: STC - Yes
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.