Optiva Inc. (TSX: OPT) is the leader in providing communication service providers (CSPs) worldwide with cloud-native revenue management software on the public cloud. The group’s products offer unmatched speed, scale, security and savings. 

Q1FY20 Financial Highlights: OPT declared its quarterly results, wherein, the Company reported total revenue of USD 19.04 million, significantly lower from USD 24.94 million in the previous corresponding quarter. The Company reported lower cost of revenue of USD 5.35 million against USD 8.9 million in pcp, which supported gross profit. The Company’s gross profit stood at USD 13.68 million, lower than USD 16.03 million pcp due to a lower top line. The quarter was marked by considerably lower sales and marketing expense, a higher general and administrative and a surge in research and development costs due to investments in cloud innovation. The increase in total operating expense took a toll on the profitability, and the Company reported a net loss from operations of USD 6.85 million, as compared to a profit of USD 1.06 million in the previous corresponding quarter. However, the bottom line stood better than expected at USD 0.81 million, higher than USD 0.48 million in pcp, due to a finance recovery of USD 9.76 million coupled with a higher finance income, partially offset by a foreign exchange loss.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The stock of OPT corrected ~47% in nine months and currently trading at the lower band of its 52-weeks trading range. The company operates in a cloud-related services and manages end-to-end, SaaS platform. The business failed to perform up to the expectations and reported a suppressed performance with the exceedingly higher operating expense and resulted in a net loss. The company is indulging in a pilot project for Vodafone Idea, a leading telecom operator, which is a key positive. In the recent past, the company has invested CAD 36.4 million and is planning to invest further CAD 60 million in the next two years, which is likely to challenge the financial flexibility. Moreover, the company has an equity deficit of CAD 34.81 million, and due to negative earnings, we are skeptical about the balance sheet. The stock is available at an EV/EBITDA multiple of 14.7x, in line with the industry (Software and IT Services) average of 14.3x. Hence, we recommend a ‘Watch’ stance on the stock at the current market price of CAD 22.30 on May 29, 2020.

OPT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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