Canadian Tech Small Cap Has a Big Growth Strategy

Shares of Converge Technology Solutions Corp. (TSXV:CTS) have jumped more than 39% since Capital Ideas wrote about the company seven weeks ago

Capital Ideas Media | November 17, 2020 | SmallCapPower: Information Technology (IT) has become an increasingly important part of our lives, especially now that the spread of COVID-19 globally has limited the amount of human-to-human interactions.

(Originally published on Capital Ideas Media on September 22, 2020)

Win Big With Our Small Cap Picks

 

According to Statista, worldwide spending on enterprise software and related technology is forecast to increase by 7.4% in 2021, while the overall IT spending is expected to rise by 4.3%, reaching US$3.68 trillion, due to the impact of the COVID-19 pandemic in 2020.

TSX Venture-listed company Converge Technology Solutions Corp. (TSXV:CTS) piqued our interest this week, as there seems to be some solid upward momentum in its stock price.

[Editor’s Note: Shares of Converse Technology have climbed more than 39% since Capital Ideas wrote about the company seven weeks ago.]

[Please click here to get immediate access to curated research in the weekly Capital Ideas Digest with our free 30-Day Trial.] 

Converge Technology provides IT services that include advanced analytics, cloud, cybersecurity, and digital infrastructure to clients in various industries throughout Canada and the United States. And, the Company has made 12 acquisitions during the past three years.

Laurentian Bank Securities analyst Furaz Ahmad recently initiated coverage of CTS stock with a “Buy” rating and a $3.75 per share target price, believing the Company has “significant” growth potential as it aims to consolidate the fragmented Information Technology Solution Providers market.

“Converge’s acquisition playbook consists of acquiring regional ITSPs who are undercapitalized and lack scale,” he wrote.

“Over the last three years Converge has completed 12 acquisitions, with management looking to acquire $400 million of revenue annually going forward by acquiring 4-6 companies per year. The Company has a pipeline of approximately 150 companies that they have reviewed as potential acquisition targets, so there is a long runway for M&A-led growth. We estimate Converge has the capacity to acquire $800 million of revenue in 2021, owing to its acquisition funding structure, as acquisitions are funded with debt and working capital, without the need for equity.”

The analyst added that management anticipates the Company will grow organically at 10% annually over the next several years, benefitting from long-term trends, as there are numerous organic growth opportunities available to it. This includes continued cross-sell opportunities within its existing customer base, which is expected to generate more than $240 million annually in recurring revenue by 2021.

Mr. Ahmad cautions, though, that Converge’s balance sheet is currently highly levered due to debt-funded acquisitions, but anticipates that deleveraging will occur over the next couple of years.

To read our full disclosure, please click on the button below: