Headquartered in Toronto, Canada, Echelon Wealth Partners is an investment company managing more than $5 billion in assets for approximately 60 advisor teams and their clients. Sectors covered by the firm include technology, industrial, cannabis, healthcare, real estate, mining, telecom and media.
In January 2018, Echelon began covering mCloud (TSX-V: MCLD) (OTCQB: MCLDF). We recently chatted with Gianluca Tucci, an Echelon analyst following the company, to understand why he believes mCloud is a worthy choice for investors.
Can you briefly describe your role at Echelon?
I am part of Echelon’s Equity Research Group covering technology, gaming and diversified industries. My role is to offer advice to our retail network and institutional clients, including hedge funds, pension plans and other investment arms, that ultimately buy or sell stock through our sales trade desk.
What was it about mCloud that initially captured your attention?
The company has an unusually aggressive acquisition strategy that you don’t traditionally see among smaller companies in the technology sector of capital markets today. mCloud is one of the few technology and software companies that is aggressively pursuing acquisitions as a means of complementing its core technology, bulking up the size of the company, and achieving strategic objectives as a combined entity. In terms of the landscape today, there aren’t that many other companies of similar size and scale that have been pursuing acquisitions as aggressively as they have been over the past two years or so.
What else do you think separates mCloud from other microcap companies?
There is more hidden risk in OTC stocks than other exchanges. There are a million and two things that can go wrong. The key is to have a management team that can adapt to change.
I cannot emphasize enough how important management pedigree counts in the small cap world. A large part of a company’s success stems from the expertise and collective wisdom of management and its ability to execute on strategy.
With mCloud’s key decision makers coming from the industrial automation areas of Honeywell, GE, Exxon Mobil, etc., it’s like the management team of a billion-dollar company. I think that’s one of the reasons they’re so comfortable pursuing this aggressive acquisition strategy. They’ve been part of it before. They know the things that work. It’s intuition at this point.
That’s what sets mCloud apart. I think mCloud’s management team’s experience helps them think on their feet to deliver on investor expectations and achieve their internal and externally published targets. With management’s demonstrated ability to close sizable acquisitions, it’s only a matter of time before that translates into increased equity returns.
Do you see any obstacles to growth?
mCloud has the right vertical approach and the right complementary technologies as a combined suite. After the close of their most recent acquisition, you’ll start to see the market impact of mCloud’s combined value proposition.
Obviously, mCloud is competing against some pretty big dogs who have much deeper pockets. However, while they’re competing with much larger enterprises with more resources, their competitors’ technologies are not as cutting edge or current as mCloud’s. In terms of its value proposition and technology, mCloud has something that is pretty unique.
The way that I explain mCloud’s technology to people is that it’s IoT asset management intersecting with AI and machine learning. It’s that combined approach with the automation of data and optimization that should enable the platform to sell itself. They already have marquee customers that can serve as reference points for other customers.
What’s your opinion regarding the company’s current valuation?
Well, I rate mCloud as a “Speculative Buy” with a 12-month target price of C$1.10. I’m kind of surprised that the stock price is currently in the 30 to 40 cent range. However, I think that after they close the financing on the latest acquisition and announce a quarter or two of combined results, you’ll start to see an uplift in its equity to catch up with the fundamentals.
As mCloud starts releasing actuals, or historical results versus pro-forma, people will begin to assess and quote it in a different manner and a different light. Because at the end of the day, mCloud is a software-as-a-service (SaaS), high-margin, recurring revenue business. When the acquisition is closed, I think that it will start to be valued as such.
What kind of growth are you expecting in mCloud’s sector?
ARC Advisory Group estimates the remote asset management marketplace will be $27 billion by 2022. The major growth drivers are the declining costs of IoT components, increased demand for IoT solutions, cloud computing, advanced AI and analytics, the increased cost of assets and skilled laborers, and a shortage of skilled labor.
mCloud addresses all these areas inside its offering. It’s IoT-focused in the cloud, it has a machine learning approach that features advanced analytics, it’s tracking mission-critical assets, and so on. mCloud should continue to be at the forefront of the sector’s growth globally, and their addressable market is large. As 5G communications arrives, that will only increase the effectiveness of mCloud’s offering as more data is available in real time and eliminates the latency for decision makers in the enterprise.
Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.
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