IQGeo Group PLC (AIM:IQG) results on Tuesday were ahead of expectations that had been lifted only a few weeks ago, house broker finnCap said, reiterating its 158p target price.
The 158p target is based on an enterprise value (EV) multiple of 3.5 times sales for next year as the business scales and turns cash profitable, with the broker targeting “substantial profitability” in 2023.
READ: IQGeo smashes expectations with 'substantial progress' in all divisions
“The current share price (a 10.2x FY23 multiple) is low for a very predictable and profitable business with steadily growing recurring revenue, anchored in the very stable utilities market,” analyst Lorne Daniel said.
The geospatial productivity and collaboration software specialist’s performance last year culminated in a recent raft of contract wins that showed “continued strong demand from both telecom and electricity network operators”, with a full year of acquisition OSPi also contributing to a "step-change" in sales growth that more than halved losses, with the company saying it expects to break even in 2022.
The year-end cash position was strong at £11.5mln, with the analyst noting that IQGeo broke even in the second half at the free cash flow level, while growth in recurring revenue was also impressive.
“Together with the support revenue and the one-off licences in the pipeline, it leaves just over £3mln new sales required in FY22 to meet our forecast 24% revenue growth to £17.2mln,” said Daniel.
Such a revenue level should see IQGeo swing to a material £1.6mln adjusted profit (EBITDA), the analyst said, with cash generation to cover ongoing development.