Tuesday, July 4, 2017

Key Excerpts from Roth Capital Report on Cogint $COGT

Roth Capital initiated coverage of Cogint (ticker: COGT) last week. The following are key excerpts from William Gibson's report:

Valuation:
  • Based on a multiple of 9x our 2018 adjusted EBITDA multiple, our 12-month price target is $7.65 per share. We also believe that multiple could increase significantly if and as the company’s risk management solutions business grows as expected
Revenue, EBITDA, Profitability:
  • In line with company guidance and driven by growth in both Information Services and Performance Marketing, we estimate Cogint grows 25% in 2017 to $234.3 million with a nearly 69% increase in adjusted EBITDA to $25.2 million or $0.45 per share from nearly $15 million in adjusted EBITDA or $0.34 per share in 2016. In 2018, we estimate another 25% growth in revenue to $292.6 million, resulting in adjusted EBITDA of $49.2 million or $0.77 per share and earnings of $7.8 million or $0.12 per share.
Gross Margins:
  • We estimate risk management achieves 45% gpm in the second half of 2017 and 65% around mid-year 2018, with a 70%-80% gpm possible a year after that. Our 2018 revenue estimate of $292.6 million assumes an estimated 41.1% blended gross profit margin. Beyond that, we believe a blended gpm profile of 45%-50% is possible.
Management Experience:
  • Cogint’s management built several leading companies in the data fusion industry over the past 15 years, including most of the systems for two of the three leading competitors. This time, the team set out to employ modern data science in an intuitive, easy to use platform, all at a lower cost. The result is a cloud-based data fusion platform that collects billions of data points from thousands of disparate databases. End user markets include law enforcement, debt recovery, process servers, bail bond skip tracing, government, corporate security, banking, insurance, legal and more.
Recent Management Changes:
  • Mr. MacLachlan (current Cogint CFO) and Mr. Reilly (returning Cogint President) were prevented from working as counterclaims were filed. Mr. MacLachlan returned to work in February, all issues settled and Mr. Reilly returns July 1, 2017, which we view as a particular positive development for Cogint in its quest to acquire large customers requiring complex solutions
CORE Technology:
  • Over the past two quarters, the company reported success with larger companies in financial and other markets. We expect Cogint to take share and grow significantly as it introduces its services in more and more markets that the team is already experienced in serving.
  • We view it as a largely fixed cost business with a high percentage of incremental business contributing to operating income. By operating in the cloud with Amazon Web Services (AWS), Cogint’s risk management solutions business avoids the cost of data rooms and computer hardware, creating the capability to extract meaningful operating leverage.
TransUnion Lawsuit:
  • The case is ongoing. Regardless of the outcome, it only affects technology used by TLOxp and we believe CORE’s software is new and has no overlap
Competition:
  • The largest competitor is probably LexisNexis Accurint, which is believed to serve over 400,000 public and private customers, generating revenue between $600-$900 million a year. Hank Asher and Ole Poulsen (current Cogint Chief Science Officer) originally developed Accurint and segments of the original software likely remain in use.
Future Stock Offerings:
  • The company is adamant that internally generated cash will fund its business and no stock offering is needed.
More on Cogint HERE.

Disclosure: Long

NOTE: I have no formal relationship with any company discussed here nor do I receive any compensation from them.

This website is published for informational purposes only and does not provide investment advice, nor is it an offer or solicitation of any kind to buy or sell any securities and/or investment products. In the event I invested in a featured security or investment product, an acknowledgment will be made. All opinions expressed are my own.

No comments: