Eight Capital analyst Suthan Sukumar remains bullish on media technology company BBTV Holdings (BBTV Holdings Stock Quote, Chart, News, Analysts, Financials TSX: BBTV), saying in a recovery report Wednesday that a now closed funding round should allow management to pursue M&A opportunities.
Vancouver-based BBTV provides end-to-end online content management and monetization services to content creators that span the gamut from individual creators on platforms like Instagram and TikTok to businesses like the NBA.
The company completed an initial public offering last October of shares at $ 16.00 for gross proceeds of $ 172.4 million. With the offer, BBTV bought the shareholder of BroadbandTV RTL for full control of the company, which in 2020 increased its revenue by 23% to $ 459.0 million.
With a market cap of $ 156 million, BBTV’s share price has mostly fallen over the past six months, from $ 15.00 in early January to its current level of $ 7.00.
BBTV on Tuesday announced the closing of a previously announced bought deal and private placement offer, with the $ 35 million offer involving $ 20 million in the convertible private placement and $ 15 million in the takeover transaction. convertible control.
The total convertible offer (17,270 debentures) has a term of five years and carries an interest rate of seven percent annually, maturing December 31 of each year and the offer is converted into common shares at the rate of $ 10.55 per share. BBTV may force the conversion if its share price closes above $ 20.00 for 20 consecutive days, although there would be interest payable for the remainder of the first three years of conversion. The $ 20 million private placement is made with a $ 1 trillion Canadian institutional asset manager. In addition to the convertible, BBTV extended an existing long-term debt related to the RTL deal by around $ 29 million to a new five-year maturity in 2026.
The company plans to use the net proceeds for working capital, including organic growth initiatives, potential merger and acquisition transactions and to repay the company’s existing secured debt.
“This financial package significantly strengthens our balance sheet and allows us to pursue organic and inorganic growth initiatives that are an integral part of our strategic business plan,” said Shahrzad Rafati, Chairman and CEO, in a press release.
“We are grateful and excited to welcome a number of new institutional investors, including a leading Canadian trillion dollar asset manager who acquired our notes in a long only fund. We see the strong support we have received as validation of our efforts to help creators around the world grow and interact with audiences and ultimately achieve greater financial success, ”Rafati wrote.
On the financing side, Sukumar said that the participation in the round table of a large trillion-dollar ($ 20 million) asset manager as well as insiders signals a “strong vote of confidence.” on BBTV and highlights a “very attractive risk-reward in stocks.”
“We see the transactions as an important catalyst because they: (1) eliminate short-term debt overhang by postponing the maturity of the company’s convertible debt from 2022 to 2026; and (2) provide greater balance sheet flexibility, allowing the Company to accelerate growth investments in its higher-value Plus Solutions segment and pursue strategic acquisitions to complement and accelerate the overall organic growth opportunity.
Going forward, Sukumar is asking BBTV to generate 2021 and 2022 revenue of $ 497.2 million and $ 595.1 million, respectively, and 2021 and 2022 adjusted EBITDA of $ 9.0 million and 5 , $ 2 million, respectively.
With the renewed coverage, Sukumar claimed a “Buy” rating and a target of $ 22.50, which, at the time of publication, represented a 12-month expected return of 186%.
Sukumar said he expects BBTV’s high-margin Plus solutions to remain the main area of investment for the company, with revenue ramping up in the second half of 2021.
“While direct sales remain the primary growth driver within Plus, management also expects robust growth in content management and mobile applications, especially the former, as the COVID-19 restrictions lifted. allows the content production business to rebound, ”Sukumar wrote.
Regarding mergers and acquisitions, Sukumar said investors can expect BBTV to be active in the short to medium term, as the company has a large portfolio of targets.
“While the initial transactions are likely to be more specialized, integrated in nature, we believe they will aim to accelerate Plus’s growth through technology-driven agreements to expand end-to-end capabilities and monetization opportunities, strengthening existing capabilities and bench strength in key areas. More verticals such as content management and mobile applications, or more broadly improving direct ad revenue growth through owned content and branded entertainment assets, ”Sukumar wrote.
On a comparative basis, Sukumar estimated that BBTV is currently trading at 4x the 2022 gross margin, which is a “big discount” from specialist media players at 6x, adtech players at 14x and streaming / network platforms. social at 16x. Sukumar’s target of $ 22.50 implies a multiple of 9x, which the analyst says is a bonus for its specialty media peers given BBTV’s technology-based operating model, but remains a discounts for adtech and streaming / social media peers given the early days of the company’s progress with Plus Solutions and with room for expansion as Plus gains traction and generates higher margin revenue growth.
Disclosure: Nick Waddell of Cantech Letter owns shares of BBTV and the company is an annual sponsor of the site.