AcuityAds Holdings Inc. (TSX: AT) is into communication services and its key business includes the provision of targeted digital media solutions that enable advertisers to connect with their audience across online display, video, mobile and social media campaigns.

Key highlights

• Improved Adjusted EBITDA for FY21: The company reported a 28.3% rise in its Adjusted EBITDA to CAD 20.30 million in FY21 as compared to the CAD 15.8 million in pcp. The higher revenues and cost optimization were the primary force driving the improved EBITDA.

• Geographical revenue segregation: For FY21 the revenue from the US constitutes close to 73% of the total revenue share and reported a 12.85% increase in revenue to CAD 88.97 million from CAD 78.83 million in the previous comparable period. The revenues from the Canadian region contribute 14%, but it recorded a steep rise of 45% for FY21 to CAD 17.18 million vs CAD 11.84 million in the pcp. The revenues from Europe grew marginally to CAD 15.87 million in FY21 as compared to CAD 14.21 million in FY20.

(Expressed in Millions of CAD)

Source: Company filings, Analysis by Kalkine Group

• Debt management: The company is very careful in terms of its debt management which is reflected on its books. For Q4FY21, the Debt-to-Equity ratio of the company stood at 0.10x which is lower than the industry median of 0.17x. Further, the company’s percentage of Long term Debt to Total capital was at 4.8% for the reported period which is lower than the industry median of 17.3%.

Source: Refinitive, Analysis by Kalkine Group

Risks associated with investment

The company is very much exposed to technological upgrades, which require consistent spending on research and development, along with that the intensive competition always brings an additional challenge of price wars, which can dampen the margins in near future. Further, the foreign exchange possesses a big challenge, if a 10% movement occurs in the Canadian Dollar vs US Dollar, the net monetary assets could move by an approximate figure of CAD 8.25 million.    

 Financial overview of FY2021 (Expressed in CAD)

    Source: Company Filing 

• The company reported an increase in revenues to CAD 122.02 million in FY21 vs 104.89 million in FY20. For FY21, the regional increase in the revenues was majorly from the Candian segment of approx. 45% and the Self-service segment grew by close to 25%, as compared to the previous comparable period.

• The cost of revenues (media cost) increased by 16% to CAD 58.46 million in the FY21 vs CAD 50.80 million in the pcp. 

• The income from operations for FY21 stood at CAD 9.38 million as compared to CAD 6.99 million in the pcp. There was a rise in the share-based compensation of CAD 5.32 million for the reported period vs 0.99 million in the pcp, which increased the income from operations significantly.

• For FY21 the company reported a net income of CAD 10.55 million vs CAD 3.69 million in pcp.
  

 Valuation Methodology (Illustrative): EV/ Sales multiples Based

Analysis by Kalkine Group 

Stock recommendation 

The company reported strong FY21 revenue numbers of CAD 122.02 million with a growth of 16.3%  as compared to the FY20 revenues. The group started a steep rise in its Net income for the FY21  at CAD 10.55 million which is close to 1.8x times of its FY20 Net income, along with lower debt ratios than the industry median, which is a key positive.

On the valuation front, the stock is measured on the Enterprise Value to Sales based multiple, and currently trading at 0.4x as compared to the industry mean (Consumer cyclical) of 1.1x, this implies the stock is undervalued and there is much headroom for the stock to match the industry valuations. We have considered Sangoma Technologies Corp, mdf Commerce Inc., Baylin Technologies Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the current market price of CAD 2.68 at 10:12 AM Toronto time on March 14, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 14, 2022). Source: REFINITIV, Analysis by Kalkine Group 

 Technical Analysis Summary

Disclaimer

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