Thursday, July 27, 2017

Analyst Reacts to TransUnion Settlement

Earlier this week Cogint (COGT) announced a settlement agreement with TransUnion (TRU). Chardan analyst James McIlree had the following reaction:
"Cogint announced it has settled all litigation with TransUnion for $7 million to be paid over the coming year. This is a very positive inflection point for the company as the litigation over intellectual property claimed by both TransUnion and Cogint has dogged it since 2014 The pain of the settlement will be offset by the reduced expenses for litigation, as well as eliminating a distraction for management. Cash at the end of Q1 was $22 million and we model the company to be cash flow positive, so the $7 million should not present major obstacles. 
We continue to expect improved gross margins and EBITDA margins for the year as the Performance Marketing business maintains current margins and the Information Services business gross margin increases with volume. At scale, gross margins for the Information Services business can exceed 70%. We expect margins to improve with the scaling of the Information Services business, and the margin improvement to drive a multiple expansion
Key drivers for the Information Services business includes the batch migration from the legacy platform to CORE and the introduction of additional data for a comprehensive reporting product. We expect these to be powerful contributors to our second half sales and EBITDA estimates. In addition to the $7 million now due TransUnion, for the remainder of the year contractual obligations include $3.2 million of data license agreements, $7.6 million of debt payments, $2 million in employment agreements and contingent stock payments to Q Interactive of $10 million. We have operating cash flow covering the cash needs, however, additional cash would be useful for more acquisitions and organic growth. 
The shares are very attractive at current levels, trading at 1.1x sales and 7.5x EBITDA, both far below the comp group of 4.6x and 14x respectively. Our $12.50 price target is about 3x our FTM sales estimate. This multiple is a 33% discount to the peer group. Cogint’s EBITDA margin is below the peer group, but this is due to the substantial investment in Information Services occurring through this year. We expect EBITDA margins to increase rapidly as Information Services scales and the EV/ Sales multiple could narrow versus the group. Risks to achieving our price target include a slower than expected EBITDA margin improvement in Information Services, greater competition in digital advertising, and reduced economic activity which could negatively impact growth in both the advertising and data fusion markets."

More COGT analysis HERE.

Disclosure: Long COGT

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