PKKFF: Raising Estimates as Management Guides to $104 Million in Revenues Showing 144% Growth

By Lisa Thompson

OTC:PKKFF

READ THE FULL PKKFF RESEARCH REPORT

On Tuesday, Peak Fintech PKKFF management release revenue, net income and EBITDA guidance for 2021, 2022 and 2023 as follows:

Its previous guidance from last year was $50 million in revenues, but given its $14 million quarter in Q1 that seemed quite low and we had raised our expectations to $90 million. Investors had been waiting for the company's recent capital raise to be completed for updated information and the company is now looking for 2021 revenues of $104 million with $12.5 million in EBITDA (not adjusted) and $5.6 million in net income, which could result in $4.5 million to common shareholders or $0.027 per share. The company expects EBITDA margins to grow from 12% this year to 25% by 2023.

We are raising our 2021 revenues to $100 million due to the strong Q1 results and management's near term confidence due to high visibility. This would result in EPS of $0.024 and put the company solidly in the black. For 2022 we are starting with an estimate of $200 million. This is lower than guidance as the company has unannounced plans in the works that could raise that number up to its guidance. With CN$56 million on cash on hand and a fully diluted share count of 184 million this puts its US market cap at US$368 million and its enterprise value at US$323 million. Using US$79 million for 2021 estimated revenues, the stock is trading at 4.1xs EV to sales versus its peers who trade at 12.3 times.

Q1 2021 Earnings Results

Peak Fintech started the year with a strong Q1, reporting revenue growth of 261% and lower losses. Spending was far below our estimates and sequentially much lower than expected. We imagine part of this was due to less cash available than expected as the company's capital raise was delayed by regulators seeking more information and caused the company to issue a revised annual information form for 2020.

During the call management predicted it would have positive net income in Q2 as well as again being EBITDA positive. Another interesting insight was that in Q1, half of the transactions in the quarter were generated by the new agreements signed in Q4 and among those was a surprisingly strong showing from social media influencers. They continued to work through the Chinese New Year in contrast to typical businesses.

Most of the revenues in the quarter were from low margin supply chain customers but the future growth is expected to come from higher margin services that will contributed gross margins between 50-60%. Adding to overall gross margin improvement will be the shift to using Gold River rather than outside suppliers which could cut costs 30% for Peak.

In Q1 2021, Peak increased revenues by 261% to $14.2 million compared to $3.9 million in Q1 of 2020. This was below our estimate of $15 million due to a shortfall in fintech platform fees versus our estimate. The fintech platform combined with ASDS (the entity that manages the Gold River system) contributed a net $13.4 million (94% of total revenues) compared to only $2.8 million in 2020.

 On July 7, 2021, Peak completed and offering of 26.3 million units at $2.00 for gross proceeds of CAD$52.6 million. Each unit is comprised of one common share and one half of one common share exercisable at $3.50 for a period of twenty-four months. The company paid a cash commission of $3,682,000 and issued 1,841,000 agent's warrants at a price of $3.50 for a period of twenty-four months from the date of issuance thereof to acquire one common share. The net proceeds will be used to help expand its services in China related to some recently announced partnerships, to expand its services to markets outside of China, as well as for working capital and general corporate purposes. It now has approximately $56 million in cash in the bank.

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