DTGI - Digerati Technologies (DTGI) - A Surprising Reaction To A Solid Quarter Raising Price Target

Solid Q2 results. Digerati reported better than expected fiscal second quarter end January 31 results, with total company revenues of $4.019 million, versus our $3.790 million estimate. Adj. EBITDA was also better than expected at $0.364 million versus our $0.309 million estimate. The results benefited from one month contribution from the Skynet acquisition, but results were better than expected after adjusting for that contribution.Executing the roll-up strategy. The company has completed two acquisitions since the start of the year, SkyNet Telecom and Next Level. These acquisitions have augmented its customer reach in Texas and expanded operations into California. and now serves over 4,000 business customers and 45,000 users.Revising estimates upward. We are revising our estimates to reflect the Skynet and Next Level acquisitions. Our fiscal full year 2022 revenue estimate is raised from $15.575 million to $21.996 million and our adj. EBITDA estimate is raised from $1.393 million to $2.171 million. In this report, we are posting fiscal 2023 estimates that anticipate strong revenue and cash flow growth.A lending partner. The company has a favorable lending agreement with the Post Road Group that believes in the company's roll up strategy. While debt levels are lofty, near 10.7 times our 2023 cash flow (adj. EBITDA) estimates, we believe that the company likely will pare down debt through a possible equity raise, reloading for more acquisition fueled growth. Raising price target. Near current levels, the DTGI shares trade at a compelling 1.6 times enterprise value to our 2023 revenue estimate, well below industry averages near 2.5 times. We are raising our price target from $0.15 to $0.16 reflecting our upwardly revised 2023 estimates. We believe that the shares have a favorable risk/reward relationship and rate the shares Outperform. Read More >>