A move into the online dating and job classifieds businesses is starting to pay off for patient investors in e-commerce company Mediagrif Interactive Technologies Inc.
Shares in the small-cap company, based in Longueuil, Que., are trading near all-time highs as it reports improving margins, driven by the recent additions of the Jobboom employment site and online dating service Réseau Contact.
Mediagrif, which also runs online platforms for buyers and sellers of products such as cars and electronics under such brands as InterTrade and The Broker Forum, is eyeing further expansion into the growing U.S. market.
Investors are attracted to its dividend, yielding about 2 per cent, and like that its chief executive officer, Claude Roy, is the largest shareholder with a 22.5-per-cent stake in the company.
"The number one reason you buy it is because it has a smart operator who has his own money on the line," said Acumen Capital analyst Brian Pow, who has a "buy" on the stock and price target of $21.80. That's about 15 per cent above where it currently trades.
"If you look at the business, the top line growth has been okay, or average. It's really what he's been able to do on the bottom line by squeezing costs to create a high margin business."
National Bank Financial analyst Kris Thompson, who has a "buy" on the stock and $24 price target on what he calls an "underfollowed stock," said Mr. Roy is a "proven operator with a strong track record."
(Mr. Roy founded Logibec Groupe Informatique Ltée in 1982; the health-care information technology company was eventually sold to OMERS Private Equity Inc. in 2010 for $231.4-million.)
Mr. Roy, who took over the CEO job at Mediagrif in late 2008 after about a year on its board, says his goal is to buy firms that complement the company's current business structure and create value from them.
"The acquisition trail is a strong component of our strategy. The other one is to improve the business model through transactions and recurring revenues," he said in an interview.
He said the goal is to grow Mediagrif to a market capitalization of $500-million in the next couple of years, up from about $300-million today.
About 70 per cent of the company's revenues are in Canada, with the rest in the United States, where Mr. Roy says he's looking to expand.
"This is where the economy is booming now," he said.
Among seven analysts that cover Mediagrif, five have "buy" recommendations, one says "hold" and one "sell," according to S&P Capital IQ. The analyst consensus price target over the next year is $20.97, which is near its all-time high of $20.93 in late November.
The stock has pulled back in recent months as investors wait to see how the company integrates the Jobboom and Réseau Contact businesses it bought last year from Quebecor Media Inc.
Ryan Modesto, managing partner at 5i Research, says declining margins and income were a concern for Mediagrif, especially after a 10-year federal government contract that the company had ended in May, 2013. But he said the company's overall financials appear to be improving with the addition of the new companies.
"We think they have turned the corner," said Mr. Modesto. "Between the growth numbers, sustainable dividend and high insider ownership, we think it's a stock worth owning right now."
Others aren't as ready to jump in.
Cormark Securities analyst Richard Tse has a "reduce" rating on the stock, which is equivalent to "sell," and a $17 target.
"We continue to believe valuation remains the big challenge for MDF," he said in a note, referring to the company's stock symbol. "In our view, the stock prices in expectations of a lot of acquisition growth already."