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SciQuest
SQI : NASDAQ : US$13.94 Target US$20.00
SciQuest’s User Group conference in Miami over the last two day gives investors a confident look that a larger addressable market – via the combination of new product introductions and expansion into new verticals – and continued sales execution will lead to accelerating organic growth in 2013.
If we are correct,
it’s likely that SQI shares see a multiple expansion that lifts the stock well into the $20s. BUY.
• User conference. A 40% y-o-y increase in attendance is a good sign for future growth.
• Three significant product introductions. SciQuest announced plans to offer Accounts Payable Integration, Business/Spend Analytics, and Contract Lifecycle Management.
Customers were
1) very pleased with initial deployments, and
2) interested in a broader relationship with SciQuest.
Suppliers view SciQuest as a partner that helps them enter eprocurement,but not at a prohibitive price (SciQuest, unlike other firms, does not charge suppliers to be on their network).
• Fundamentals – improving; accelerating growth in 2013. This year will bring an investment in sales and R&D so that FCF margins decline 50-100 basis points.
The payoff
- revenue growth that jumps from 15% organic last year to nearly
25% in 2013. If there is one almost sure-fire way to get multiple expansion, it is to generate accelerating growth.
• Venture investor selling should be done within a few months. While we understand the desire of VCs to avoid 3-5% secondary offering fees, in every instance we believe it is short-sighted and frankly bad for the company when stock is parceled out in distributions. Every time the stock inches higher, it’s “whack a mole” and the distribution pushes the stock down. Indeed, we believe this is the single biggest reason that SQI shares have been essentially flat for a year.
The good news is that the selling VC is down to about 3.2M
shares, or 14% of total shares outstanding as of the end of December. When this selling is over – and the improving fundamentals become obvious – we believe SQI shares could appreciate 30%-50% within a year.
P.S. Please feel free to forward this along to friends, family, co-workers, or anyone else you think might be interested in this market letter (
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our management video:
http://www.youtube/watch?v=4hb4vG07Zt4&feature=youtu.be&t=55s
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