Organic growth and acquisitions will drive this growth stock

PI Financial analysts David Kwan and Victoria Chan say that Vancouver-based TIO Networks Corp.’s superior growth stock profile makes it their current favourite among Canadian tech stocks.

TIO Networks Corp. (TSXV─TNC) remains PI Financial’s David Kwan and Victoria Chan’s favourite name among Canadian technology stocks, given its superior growth stock profile.

TIO Networks is an on-demand processor of financial transactions. The company provides expedited bill payment, pre-paid debit card, and money order services from its multichannel network of approximately 67,000 endpoint locations.

Based on its accelerating organic growth, improving profit margins, solid free cash flow generation and a healthy balance sheet, the analysts reiterate their ‘buy’ recommendation for TIO. They also maintain their $2.95 per share 12-month target price and ‘speculative’ risk rating.

When the analysts met TIO’s CEO Hamed Shahbazi, the company was set to close its Softgate Systems acquisition. Management had then indicated that the company had already realized most of its predicted US$5 million in earnings before interest, taxes, depreciation and amortization (EBITDA) from the deal.

Management says another US$2 to US$3 million in revenue and cost synergies could be realized over time.

There are plenty of organic growth opportunities ahead, as the analysts note. Organic growth has been picking up, aided by strong performances by key customer AT&T/Cricket.

Analysts pleased about growth stock’s opportunities

The analysts say TIO has many other solid organic growth opportunities ahead, including an expansion with Duke Energy, potential new billers, and increasing its market share within its biller base.

Management asserts that the company can triple the business based on its current biller and retail endpoint base in the coming years.

The analysts also see TIO’s mergers and acquisitions pipeline as active.

“With management busy integrating Softgate, we do not expect another potential acquisition until the latter part of this year. We believe there are two potential acquisitions at an advanced stage that are in TIO’s sweet spot.”

Measures of growth stock’s performance remain unchanged

“We are forecasting revenues of $74.9 million in fiscal 2016 and $117.5 million in fiscal 2017, with adjusted EBITDA of $9.8 million in fiscal 2016 and $16.7 million in fiscal 2017,” they say.

“TIO believes they can get to 20 per cent EBITDA margins or higher assuming no incremental revenues.

“Management has said there are still significant cost savings and reductions that could be implemented, such as consolidating call centres and moving all company systems to one platform.”

“Longer-term, reaching higher than 25 per cent EBITDA margins is attainable.

“Of note, our estimates are at the high end of consensus and management indicated that they are comfortable with our forecasts.”

 

Investor’s Digest of Canada, MPL Communications Inc.
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