DTGI - Digerati Technologies (DTGI) - What The Recent Results Indicate
Surprisingly better results. Fiscal Q1 revenues were just shy of our expectation coming in at $3.78 million versus our $3.8 million estimate. Adj. EBITDA, which excludes Legal and Professional Fees, was much better compared with our previously lowered expectations, $523,000 versus our previously lowered expectations of $293,000.Gross margins better than expected. Gross margins were slightly lower sequentially from the fiscal fourth quarter of 62.3% to close the fiscal first quarter at 60.6%, but the gross margins were better than expected. We estimate that gross margins likely will be higher than our base line estimate of 58% in the second quarter and for the fiscal full year. Fees jump. Legal and professional fees significantly increase from $258,000 a year earlier (the high water mark for that fiscal year) to $574,000 in the recent fiscal first quarter. Acquisitions play a key role in the company's roll-up story and the significant amount of professional fees indicates that the company is very active on the M&A front. We believe that the shares will react favorably to the prospect of acquisitions, which may also lead to an uplisting for the shares, another potential catalyst. Tweaking estimates. We are tweaking our fiscal full year 2022 revenue estimate from $15.575 million to $15.417 million to reflect a more conservative revenue outlook. We are flowing through the Q1 Adj. EBITDA upside to our fiscal full year, however, raising our estimate from $1.393 million to $1.549 million. Our revisions anticipate improving Adj. EBITDA trends in the second half, fueled by increased marketing and enhanced sales staff.Reiterate Outperform rating. We are adjusting our price target to incorporate the prospect for a higher level of fully diluted shares from 194.0 million to 224.0 million. Based on the more conservative potential shares outstanding, the DTGI shares trade at 2.9 times Enterprise Value to our 2022 revenue forecast and 29 times Enterprise Value to our 2022 EBITDA forecast, well below its peers. The company's peers trade at average EV/2022 Revenue and EV/2022 EBITDA multiples of 3.7x and 41.5x, respectively. We are tweaking our price target from $0.17 to $0.15 to reflect higher potential fully diluted shares outstanding. Nonetheless, the share offer an attractive risk/reward relationship. Read More >>