A junior financial technology stock to buy

VersaPay is a financial technology (fintech) stock that provides clients with cloud-based accounts receivable automation software called ARC. ARC currently has over 100 suppliers signed on the platform, more than 94 of which are live, and over 51,000 end-customers.

Financial_Technology_StockA partnership with Royal Bank of Canada (diversified financial services, personal and commercial banking, wealth management services, insurance, corporate and investment banking, and transaction processing services worldwide) and success with its Livingston Group relationship (customs brokerage, freight forwarding, and trade compliance services) kicked off a great start to the second half of the year for VersaPay Corp. (TSXV—VPY). BC-based PI Financial technology analyst David Kwan and research associate Victoria Chan give the stock a ‘buy’ recommendation and increase their 12-month target share price from $2.50 to $3.

While VersaPay entered into its agreement earlier this year with RBC to offer VersaPay’s ARC to RBC customers, the company has seen another win with Livingston International Inc. who will also use ARC to improve financial operations worldwide.

The analysts say: “While we expect a bit of seasonal softness in the third quarter on the back of an exceptionally strong revenue growth performance in the second quarter, due to the summer holidays, we believe it will be busy times for VersaPay heading into the fall and year-end.”

Q2 revenue and gross margin up; cash strong but down

In the second quarter of 2017 total revenue grew 77 per cent year-over-year and 30 per cent quarter-over-quarter to $600,000. Gross margins were 57.3 per cent, up from 54 per cent last year and 56.4 per cent last quarter. VersaPay ended the second quarter with $8.1 million in cash, down from $9.4 million last quarter. The company is in a strong cash position and management notes that they have enough cash to get to profitability but have pushed out the timing to get to break-even by a quarter to the fourth quarter of fiscal 2018.

At the end of the second quarter, there were 51,000 end-customers on the network compared to 46,300 at the end of the first quarter. Payment volumes (invoices paid) was $50.1 million, up 139 per cent year-over-year, but down two per cent quarter-over-quarter (due to seasonality with a large customer).

And, say the analysts, there are more catalysts ahead. “The direct sales pipeline continues to see strong growth, with more and more large deals entering the pipeline. The pipeline also continues to build with RBC and Ricoh Canada [information technology], and VersaPay has hired a dedicated sales support rep for each of these partners to help the company close new deals. In addition, Management is expecting to sign at least one agreement with a US partner and another one with a Canadian bank by year-end.”

As of Sept. 13, VersaPay announced that Ross Pellizzari is joining the company as its chief revenue officer. Mr. Pellizzari brings over 30 years of experience as a leader and sales professional building high performance teams.

This is an edited version of an article that was originally published for subscribers in the October 6, 2017, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

Investor’s Digest of Canada, MPL Communications Inc.
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