Universal mCloud (TSXV:MCLD) (OTCQB:MCLDF) received a vote of confidence today from Echelon Wealth Partners after the company announced plans to acquire Fulcrum Automation Technologies and Autopro Automation and released positive Pro-forma Q4 2018 financial results.
Analysts at the wealth management firm maintained its “speculative buy” rating for Universal mCloud and raised its price 12-month DCF-based price target from $0.80 CAD to $1.20 CAD on Thursday.
“We continue to forecast strong shareholder returns as mCloud gains traction and scale, over time, as a global IoT connector of assets onto the AssetCare platform,” Gianluca Tucci said in the Echelon Partners report.
Universal mCloud Closing Sizable Acquisitions
One of the reasons the firm is maintaining its “speculative buy” rating for Universal mCloud is thanks to the company’s transformational acquisitions throughout 2018 and 2019, which include NGRAIN, Agnity, CSA Inc. and most recently, Autopro and Fulcrum Automation Technologies.
The acquisition of Fulcrum was of particular interest, as it will “entrench MCLD as an asset management leader in the oil and gas sector” and gives mCloud the opportunity to “be a one-stop shop for oil & gas operators, providing the distribution of software and hardware, a subscription-based analytics platform and real-time decision making.”
Fulcrum and Autopro bring $35 million in revenue and $5.5 million in EBITDA on a trailing twelve-month basis as of the end of March.
The deal will give Fulcrum exclusive rights to use AssetCare to expand its developing network of well-established service providers focusing on global, blue-chip oil, gas and refining companies, provided that the company can provide $55 million USD or more in AssetCare subscriptions every 12 months. Echelon analysts believe that gross margins to mCloud in the oil and gas sector should yield 65%, as the monthly recurring revenue (MRR) of oil and gas-connected assets is much greater than that of connected buildings.
“We view this as a firm positive in expanding AssetCare’s reach and addressable opportunity and would expect resulting announcements in 2H19,” said Tucci.
Prior to acquiring Fulcrum and Autopro, Universal mCloud made a number of strategic moves that garnered attention from analysts and investors alike.
The company purchased NGRAIN in March 2018 to bring artificial intelligence and 3D/augmented reality technology to AssetCare.
MCLD then acquired Agnity Global, a developer of LTE/4G/5G mobile IoT application, in June 2018 in order to accelerate AsseetCare’s expansion and offer them entry into new markets, including Europe. Prior to the deal, MCLD and Agnity maintained a relationship as technology partners.
The company also signed a letter of intent (LOI) to acquire CSA Inc. last January in a bid to utilize CSA’s technology to provide a complete 3D solution and 3D field data capture and processing, as well as utilize its customer base in the US energy market. The deal has yet to go through, however, Echelon analysts expect it “to close in short order.”
Universal mCloud Grows Presence in China Through Strategic Partnership
Echelon Partners noted that there has been a steady news flow from Universal mCloud since the beginning of the year. Apart from the acquisition of Fulcrum and Autopro, the company has also been signing a number of deals to provide commercial buildings overseas with AssetCare HVAC.
Universal mCloud partnered with SCN Ltd. last spring to bring its Smart Buildings HVAC solutions to China. SCN is a well-established, reputable commercial building contractor that is known for its high-quality design, construction work and innovative building technology. The partnership has already led to a 9-year contract with Heiwado to implement AssetCare HVAC at one of its shopping centers in Changsha, China.
The company also signed a deal in April with Hubei Huayan Zhidian Technology Co, Ltd. to target commercial buildings located throughout 1,200 townships in China’s Hubei province.
As of December 2018, Universal mCloud has 28,800 assets connected, which surpassed its 28k target.
Universal mCloud Releases Positive Pro-Forma Q4 2018 Results
Echelon Wealth Partners’ report also highlighted Universal mCloud’s pro-forma Q4 2018 financial results, which showed a revenue of $3.8 million CAD which was up from $3.6 million quarter-on-quarter.
Excluding the acquisition of Fulcrum and Autopro, the company noted that its full-year 2019 revenue would have been between $18.5 million to $21.0 million with 5-8% adjusted EBITDA margin. When Fulcrum and Autopro are factored in, the full-year 2019 revenue is expected to by $55 million with 15% adjusted EBITDA margin.
Long term, Universal mCloud said in an update call that it expects to see 30% CAGR growth.
Investors are reacting favorably to the speculative buy rating and price target adjustment. As of 2:30 pm EST, Universal mCloud’s share price increased to $0.44 CAD, up $0.03 (+7.32%).
It will be exciting to see what else Universal mCloud will do this year and whether or not CSA Inc. will sign the deal.
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