SYTA: Despite 2Q21 Sales Miss, We Remain Optimistic about SD7 New Handset Launch for Mission Critical

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By T. Moore, CFA

NASDAQ:SYTA

READ THE FULL SYTA RESEARCH REPORT

Business News Update

Siyata Mobile Inc. (Siyata Mobile Inc. SYTA announced weak June Quarter revenues due to a customer refund and weakness form the pandemic. Revenues of $0.4 million compared to our forecast of $2.6 million and were hindered by a customer return of $1.1 million. COVID-19 had a negative sales impact for its rugged handsets, yet cellular signal boosters systems grew 152% in 1H21 in US. Management cited revenues improvement in 3Q and we expect a good 4Q topline.

SD7 is ready to launch in North America in 4Q (November our assumption) and launch in Europe in 2022. Separately, recent purchase orders and three other important agreements help visibility for 2022. We estimate breakeven adjusted EBITDA profitability could be achieved in 2022 as a catalyst for re-rating of the stock.

The company has been active demonstrating the new SD7 product at two major conferences in the past two months (IWCE in Las Vegas & APCO International Conference).

There has been a lot of news flow of new orders won and partnerships signed for the UV350 and rugged handsets during the past three months. Two recent purchase orders, a recent cellular boosters reseller agreement (with Silk Worldwide) and Australia win should help visibility for 4Q21 & 2022 revenues:

1) $530,000 purchase order for multinational defense contractor for rugged handsets and UV350 commercial vehicle devices.

2) $400,000 purchase order from a Middle East distributor for its UR7 rugged smartphone and CP250 tablet-style fleet communication devices mostly for taxis and delivery companies.

3) Sizeable reseller agreement signed with Silk Worldwide to distribution Uniden cellular signal boosters on SignalBosters.com and on both the Amazon and Walmart marketplaces.

4) Unquantified order potential for the UV350 device for approval with Telstra, Australia. Telstra is the largest wireless carrier in Australia with the majority of Australia's population. Last week's announcement week helps position SYTA better on the international expansion front.

5) Strategic partnership with Esper full-stack mobility management software for SYTA's SD7 handset launch. A customized Android operating system integration into the SD7 for large scale deployment.

Highlights of the June Quarter results include:



Siyata Mobile (SYTA) reported a sales decline of -83% year-over-year for the June quarter. 
$0.4 million reported was significantly below our estimate of $2.6 million because of a customer merchandise return of $1.1m and softness from the COVID-19 pandemic impact on rugged handsets.

One bright area was cellular signal booster sales, where revenues increased by 152% in 1H21 in the US driven by industrial end markets and other uses.

Customer refund of $1.1 million was unexpected and related to a large scale tender for US customer, which took product before they did not win the tender. SYTA has an important relationship with that US customer, so made an exception to accept the return.

Adjusted EBITDA was negative -$4.8 million after backing out non-cash impairments of Intangible Assets ($4.3m) and Goodwill ($0.8m). Gross profit was slightly negative due to customer return.

Valuation:



We value Siyata Mobile using a peer comparables valuation methodology based on EV/Sales for 2022 estimates. We typically prefer EV/EBITDA, P/E & P/FCF multiples, but this company has not achieved positive adjusted EBITDA on an annual basis. 



We forecast breakeven adjusted EBITDA in 2022.

We reach $10.50 stock price per share by applying a 10% discount to the peer group average of 2.5x EV/Sales 2022. Compared to SYTA trading at 0.6x our 2022 Sales estimate & 1.2x 2021.

Our $10.50 price target valuation is lower than our previous target because the peer group de-rated by 15% since our July initiation report and we are applying a 10% discount for the 2Q topline miss (not fully recovered in our 3Q estimate), inventory impairment (similar to 4Q20) and recurring operating losses.

While 2023 is still many quarters from now, the stock would be compelling if the company can achieve $2.2 million adjusted EBITDA in 2023. If so, that could make today's valuation 6.5x EV/EBITDA 2023.

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