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SIM.v/SYATF C$.495

Paradigm Capital analyst comment on Q3

Paradigm Capital: Buy rating and $0.85 target for Siyata
According to Paradigm Capital:

https://docdro.id/koYyDjT

RESEARCH NOTE | November 30, 2018

Siyata Mobile Inc.

Rating: Buy
unchanged

12-Month Target: $ 0.85
unchanged

North America 4G Device Sales Imminent

Investment Thesis. Disruptive, best-in-class technology with first-mover advantage and rapid innovation are driving exponential growth for SIM. Its communication devices provide unparalleled features at a fraction of the price of competitive offerings; therefore, it is rapidly winning new key customers, particularly in its targeted growth markets — North America and Europe.

Event

Although SIM’s Q3 results were lighter than forecast, we are more focused on the company’s upcoming 4G opportunities in the North American market, with its flagship UV350 device officially launched on the Bell network during Q4, and expectations of at least one U.S. carrier to launch the product in Q1.

Highlights

• Q3 Results | SIM reported revenue of $3.2M versus our estimate of $4.2M, compared to $5.3M in Q2. Management attributed the greater-than-forecast q/q decline to a lag related to holidays in Israel starting earlier than usual (month of September), which resulted in essentially just two months of revenue in the country during the quarter, in addition to delays in the approval of its 4G UV350 device for North America. Gross margin came in at 26% versus our 28% estimate as the company received a large order related to legacy 3G products which carry low margin. Adjusted EBITDA of -$898K was below our estimate of breakeven profits on account of the lower revenue and gross margin, but also owing to higher S&M expenses, which the company ramped up on in advance of its commercial launch of the UV350.

• North American Device Sales Around the Corner | Bell officially launched the UV350 product on its network on Oct. 31; a leading tier 1 U.S. carrier signed a supply agreement on Nov. 19; while a second tier 1 U.S. carrier announced it is in the process of network certification for the device (July 16). We anticipate initial sales at Bell to materialize in December, while management noted that it expects at least one of the U.S. carriers to officially launch in Q1. Importantly, UV350 devices carrier much higher gross margins at +45% versus legacy 3G products in the mid-20% range.

• Forecast Updated | We have modestly updated our model to reflect a pushing out of some of the revenue shortfall in Q3 into Q4 and 2019. We now are looking for 2018 revenue of $16.4M ($17.4M previously) and an EBITDA loss of -$1.6M (loss of -$0.9M previously). For 2019, we expect revenue of $54.0M ($53.2M previously) and EBITDA of $9.4M ($9.1M previously).

Valuation & Conclusion

Q3 itself was a non-eventful quarter from a financial perspective, but the period saw several major milestones that positioned SIM for a material ramp-up in revenue in 2019 and beyond, including the launch of its flagship 4G UV350 product on Bell and the signing of a supply agreement with its first U.S. wireless carrier. We maintain our positive view on the stock given the large opportunity the company has ahead of itself. We value SIM using a 9x EV/EBITDA multiple, arriving at our target of $0.85. We maintain our Buy recommendation.

Read more at http://www.stockhouse.com/companies/bullboard?symbol=v.sim&postid=29089809#T02z5ihgGSK0ig3e.99