Analysts at Stifel GMP have reiterated their ‘Buy’ rating and C$3.75 price target for software-as-a-service (SaaS) company Kneat.com after it signed a three-year agreement with a division of a top 20 global pharmaceutical company for e-logbook management in its quality control laboratories.
Ireland-based Kneat designs and supplies proprietary software, sold mainly as a SaaS offering for the validation space with a focus on manufacturing for life sciences.
“The new win highlights Kneat's recession-resilient business and demonstrates its applicability outside of validation,” Stifel’s analysts wrote in a note to clients.
They pointed out that the new deal follows two prior agreements and two extensions announced in the past six months, which go live in 1Q and 2Q 2023, setting the company up for good growth in the first half of this year.
“We continue to highlight Kneat as a fast growth SaaS company, as evident by its 2022 net retention rate of 158% and existing customer base which represents an annual recurring revenue (ARR) expansion opportunity from about US$18 million currently to US$50 million in the medium term,” they wrote.
“We see Kneat as having a good mix of defence and offence, including by serving the top 8/10 pharma customers that are less impacted by macro events and with a clean balance sheet, including about $12 million in cash and no debt.
“The company has an opportunity to grow its ARR by about three times with current customer base, along with new total addressable market opportunities through additional verticals that could be accelerated via M&A.”
The analysts concluded: “Our ‘Buy’ rating reflects a view of Kneat.com becoming a core SaaS holding for institutional investors ahead, and we maintain our $3.75 target.” The analysts' price target is based on eight times 2023e sales.
Kneat’s Toronto-listed shares are currently trading at about C$2.64.
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