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

Key Updates:

• Positive cash cycle days: The company reported a positive cash conversion period of 92 days in Q3FY21, as compared to the negative industry median of 23.3 days. This indicates that the company is successfully converting its investments to cash flows, which is a key positive.
  

• Rise in cash flows: For 9MFY21, the company reported its cash from operations of CAD 18.6 million, higher than CAD 15.9 million in pcp, supported by a net income of CAD 8.0 million, as compared to a net loss of 0.4 million in pcp. A higher cash flow indicates higher liquidity.

• Solid growth from managed services platform: The company reported a strong growth from its managed services platform and reported income of CAD 65.1 million in 9MFY21, as compared to CAD 52.7 million in pcp. This was supported by added income from emerging verticals such as pharmaceutical, technology, automotive and direct-to-consumer brands.
  

Risks: In 9MFY21, the company reported rise in Sales and marketing cost (CAD 14.9 million in 9MFY21 v/s CAD 13.6 million in pcp) and increase in General and administrative cost (CAD 5.4 million in 9MFY21 v/s CAD 4.8 million in pcp). Continuation of the above trend would lead to margin shrinkage and lower profitability.

Q3FY21 Income Statement Highlights (Source: Company Report)

• AT announced its quarterly result, wherein the company posted its revenue of CAD 27.4 million, slightly higher than CAD 26.0 million in pcp. The growth was primarily driven by higher revenues from both of its segments.
• The quarter was marked by higher media costs, increase in sales and marketing expense, and higher general and administrative costs. Income from operations stood at CAD 1.7 million, higher than CAD 1.4 million in pcp.
• The company reported a net income of CAD 3.3 million, significantly higher than CAD 0.9 million in pcp. This was due to higher income from operations, a foreign exchange gain v/s foreign exchange loss, partially offset by higher finance costs.

Valuation Methodology (Illustrative): Price to Earnings-based

Analysis by Kalkine Group

Stock Recommendation:

At the end of 9MFY21, the company reported a strong growth in profitability and posted Adjusted EBITDA of CAD 14.3 million, significantly higher than CAD 7.9 million in pcp. Continuation of the above trend is likely to support the company’s upcoming performance. We have valued the stock using the P/E based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Perion Network Ltd, Converge Technology Solutions Corp etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at current market price of CAD 3.66 at 10:16 AM Toronto Time on February 02, 2022.

One-Year Technical Price Chart (as on February 02, 2022). Source: REFINITIV, Analysis by Kalkine Group

  Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

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