Paysign Inc (PAYS)

[ebrie014]

Q2-2017 Updated - Valuation & Quarterly Thoughts:

The Company & Management continues to demonstrate promising results.
I especially like the fact that they took the time to put together a shareholder update and guidance section in their press release.

Overall;

- Top line results were very impressive with 44%+ growth over last year
- Gross margins increased from Q1-17 (42.7% to 45.7% - more in line with historical norms but still slightly lower than 47% in the same quarter last year)
- SG&A did increase on a dollar amount basis but proportionately to the revenue it actually decreased to 27.2% of revenue vs. 28.7% of revenue in the same quarter last year.(reasonable given they are ramping up so many programs) Depreciation was up by 100k over last year which is a non-cash item anyway (and simply means they added more infrastructure/bought more equipment to help them grow)
- By my own EBITDA calculations (which is how I like to look at things) EBITDA was 634k this Quarter vs. 448k in the same quarter last year (EBITDA margins were 18.5% vs 18.9% last year simply due to slightly lower GM%)
-Overall very good performance, but what I like most is the update/guidance. To obtain between 15-15.5M over the whole year the Company would need to have Q3-Q4 make up between 8.3-8.8M which means the growth in the second half of this year over the same period last year has to be between 42% to 51%. Not to mention the Company must have fairly good certainty on these numbers as we are already partly through Q3 and they have already shown they have grown from the current 139 programs to 160 (15% growth in programs - the same growth that was seen in the current Q's program growth 120-->139). Adding another 60+ programs by year end would mean an over 44% growth in number of programs within less than 6 months).
- Given the currently available information, my "reasonable Targets for the stock are 1.50$ for 2017FYE and 2.10$+ for 2018FYE.

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Valuation (including next FY estimates)

Current Fiscal Year Revenue: (46.5% growth) ~15.25M in 2017 (mid-point of guidance) / 2018FY estimate:21.3M (assume 40% growth)
Gross margins: 46% ~7.015M for 2017 / 9.8M for 2018
SG&A as a % of revenue 26% ~ 3.96M for 2017 / 5.5M for 2018
D&A and other: ~900k (First Half*2) / 1.2M for 2018
EBITDA:3.05M for 2017 / 4.3M for 2018
NI:2.15M for 2017 / 3.1M for 2018
F.d. share Count: 44.1M
Assumed cash balance in 12 months:~2M$ for 2017 (1.4M currently plus a conservative additive cash flow of 300k/Q)
Assumed LT debt:0$
**all multiples come from S&P capitalIQ from companies in a similar industry.

All methods use Median multiples to be more conservative.
Method 1 - EV/Sales:

Mean EV/Sales Multiple:4.3x

15.25M*4.3=EV of 65.5MM add back cash less debt=equity value of 67.7M/44M shares gives a share value of 1.53$/share


Method 2 - EV/EBITDA:

Mean EV/EBITDA Multiple:15.3x

3.05M*15.3=EV of 46.6M add back cash less debt=48.7M/44M= 1.10$ per share


Method 3 - EV/Earnings (or P/E):

Believe it or not the average P/E in this sector is 40.5x - I'll be using the median of 33.9x.

NI of 2.15M*x33.9=72.88M EV add cash = 74.8M/44M shares= 1.70$/share

Based on the above calculations a 1.50$/share target is within reach if the company trades towards its fair value and hits its guidance. Using the same metrics 2.10$ or more would not be out of reach in the following fiscal year. (and if they got bought out - I could easily see someone taking them out between 3-5$/share)


Best of luck!

E.