Infinite Group (OTCQB: IMCI, $IMCI) stock jumped by 25% after a positive note from Goldman Small Cap Research reiterated a BUY rating and a 12-month price target of $0.65. At press time, shares are trading at $0.20. According to Goldman, a recent IMCI filing provides greater clarity into IMCI's pending equity offering and the upcoming closing of the Pratum acquisition, which they believe leads to an enhanced valuation and positioning for IMCI.
The update highlighted the impact of the planned Pratum acquisition, noting that Iowa-based Pratum brings $4.4M in revenues as a cyber services player and a complimentary services suite provided to a large and diverse client base that should enhance and accelerate cross-sale opportunities. Combining the two also brings a Security Operations Center and monitoring software that enhances IGI's portfolio of offerings and could lead to $IMCI establishing a Midwest hub as it strengthens IMCI's limited Midwest sales exposure.
To close the deal, IMCI plans to raise up to $15M in an equity offering with $8.5M in proceeds to be paid to Pratum. Those terms are good, especially paying a roughly 1.9x price/sales valuation compared to an industry average of 11.1X. The $15M equity offering is expected to close in 2Q22, with the Pratum deal closing shortly thereafter. Here's where the deal gets better.
Goldman's proforma modeling indicates that while his price target is $0.65, a valuation above the one-dollar range is also in play. As a stand-alone, he sees IMCI as considerably undervalued based on 2.9x 2021 sales, which is a massive discount to the 11.1x figure afforded IMCI's peer group for 2022. Further, more milestones and catalysts are likely in play, including an expected 2022 NASDAQ uplist and additional M&A activity throughout 2022 and into 2023. A strengthening share price post the close of its Pratum deal could expedite those initiatives.
Thus, at $0.20 today, IMCI could perfectly fit into a growth portfolio needing exposure to the massive cybersecurity needs market. The better news is that while that market is a more than $165 billion opportunity today, it's expected to more than double in the next six years. So, the IMCI proposition is more than attractive; it's compelling.
Billion-Dollar Cybersecurity Market Opportunities
In 2021, the cybersecurity services market reached $165.78 billion. The better news is that it's showing no signs of slowing, with analysts modeling for a combined cybersecurity services market to eclipse the $366 billion mark in the next six years. But, with geopolitical unrest suggesting the increased likelihood of cyber-conflict over boots on the ground military, even that lofty projection could be conservative.
Still, even if the market stalled at near the $400 billion level, it's going to take more than a small handful of companies, including the power behind industry behemoths Cisco Systems ($CSCO), IBM ($IBM), and Microsoft ($MSFT), to serve a global market. And for anyone that thinks IMCI isn't ideally positioned to contribute to the cause, think again. They absolutely are part of the supply chain equation.
In fact, being fundamentally sound, well-capitalized, having cutting-edge cybersecurity technology, and managed by industry experts, IMCI is exceptionally well-positioned to cash in on the booming demand. Moreover, in a sector where size doesn't matter- expertise does, Infinite Group is as well-positioned as any to stake a substantial claim in a massive market.
That's what they're doing. And alongside penetrating a massive global market with state-of-the-art cybersecurity technology, they are also doing it the right way by understanding the market dynamics. To better explain how that's a value-driver, it's essential to comprehend that IMCI isn't in business to install cookie-cutter security platforms. Instead, they are in business to design and deliver what many others can't- a company-specific cybersecurity defense platform that protects a company's valuable assets from the inside out.
It's a differentiation that brings significant competitive advantages to the IMCI proposition. Further, its benefits from being nimble provide an inherent ability to do what many large industry companies can't- create, at scale, a one-of-a-kind platform to meet targeted and specific needs. Many think that's the norm. However, far from it.
Many cybersecurity platforms are simply modified versions of an original. While effective, they indeed have a vulnerability to most recent cyber threats. Remember, those bad actors evolve as well. So, an effective cybersecurity platform a year ago may be entirely ineffective today.
Therein lay the exposed IMCI market opportunity. They understand that the sector can't thrive on believing that what's good for one is suitable for all. And instead of following along with that faulty premise, IMCI tacked in a different direction to take advantage of the low-hanging opportunities from the thousand, even millions, of businesses that need what IMCI is selling. Of course, servicing a million jobs is unrealistic. But, inking deals with thousands of small to medium-sized companies isn't. Thus, while the large-caps focus on multi-million-dollar contracts, IMCI can do well to service those six-figure deals. Actually, that's an optimum strategy with billions of dollars in play.
IMCI Creates Cybersecurity For The Masses
Moreover, providing small to medium sized companies with designed-to-order cyber defense systems is right in IMCI's operations wheelhouse. In fact, unlike many big-name competitors that target multi-million dollar contracts almost exclusively, IMCI is more positioned as a provider to the masses. In other words, they have set themselves to take advantage of the millions of businesses that need and want the same quality cybersecurity systems as others. Inking deals with a few thousand clients certainly would deliver serious revenue milestones. And because IMCI understands that the best cybersecurity tool is a combination of computer code and understanding the human mind, their appeal to those masses of companies may generate a significant spike in business this year. That's indeed the plan.
Keep in mind that IMCI is banking on the fact that cybersecurity is more than implementing innovative technology; it's about people. After all, businesses are run by people, threat actors are people, and IMCI customers are people. So in that respect, cybersecurity isn't a technology business; it's a people business. And understanding people and how they act is the difference between designing a one-size-fits-all platform and a company-specific tool that protects businesses from bad actors and devastating cyber attacks. IMCI creates the latter.
Infinite Group doesn't hide its intentions, either. They actually say they don't sell products; they solve problems. And that's accomplished through a better approach to business whereby IMCI takes on the complexity of cyber defense while creating an architecture and road map that makes sense for a unique business. Remember that not all security is designed to protect from outside threats. Insider threat is just as serious, and in many cases, companies don't consider the exposure left when not addressing that potential. Considering that financial, medical, retail, legal, power, and manufacturing are all "people-run" businesses, that concern should top their security wish-list. Infinite Brands makes sure it does.
Moreover, they leverage an expert workforce spanning across the United States to make sure its solutions have an impact. Not only that, its business model is inclusionary, working with organizations on all levels of Information Security and Cybersecurity, utilizing its award-winning Nodeware® SaaS to provide best-in-class cybersecurity functionality. It's one of the few that continuously scans networks to identify critical vulnerabilities and is a staple in accelerating IMCI's already impressive growth by securing client data, systems, and technologies. Put simply, Nodeware® positions IMCI to stay a leader in the cybersecurity sector. Even better, case studies show why it's expected to hold its position for the long term, with data highlighting client-specific security integration that maintain IMCI's status as a respected and reliable provider in the multi-billion dollar space.
Of course, with IMCI attracting attention and inking deals, investors should do well, too. And at current levels, the stock is more than an attractive proposition; it's a compelling one.
Massive Value Opportunity
As noted, analysts are equally bullish, with Goldman SCR expecting IMCI stock to pierce its 52-week high and score prices closer to $0.65, representing a 225% potential upside from its current price.
Indeed, several factors justify the bullish thesis. The biggest is that IMCI's strengths are precisely what the cybersecurity markets need. And they play into a sentiment where cyber vulnerabilities rank as the top concern for companies, including small businesses, which was noted in a Allianz Risk Barometer update. That report exposes the primary factor behind the IMCI investment proposition; IMCI's opportunities don't need to compete against the sector's biggest players.
Instead, they can, and are, tapping into demand from a market where Accenture's Cost of Cybercrime Study showed that 43% of cyber attacks target small businesses, and that's despite only 14% of those attacks directly targeting them. Still, deliberate or not, what is exposed is that the revenue-generating opportunity for IMCI is substantial, and the deployment of its SaaS-based Nodeware® platform could be the perfect tool to fend off attacks. Sales from that platform will ramp in 2022 and, by 2023, are expected to be a considerable value driver for the company. There's still more to like.
Acquisition Of Pratum Can Be Transformative
Infinite Group is finalizing its acquisition of Pratum, Inc., a transformative deal that will add revenues, profit, and a significant client book. That deal is expected to close this quarter, bringing more than $4.4 million in annual revenues, and add complementary services and products to enhance IMCI's product offerings. Further, if ambitions stay on course, Pratum is likely the first of several accretive roll-ups planned for 2022 and 2023. Since Pratum adds immediate capital firepower, the closing could spark additional acquisition interests and capability to further fortify the IMCI asset and operations portfolio. Even better, a share price rally. Here's why.
Peer valuations in the industry score price/revenue multiples at 11.1X. Using forecasted 2022 sales and an estimated $11 million run-rate post-acquisition and a lenient discount multiple compared to peers, justifying a $0.65 price target is more than reasonable. In fact, it could be highly conservative, especially after factoring in IMCI's planned NASDAQ uplist, cross-selling opportunities, and the potential for additional M&A activity.
Suggestions of a valuation closer to one dollar have been in the conversation. Thus, expect IMCI's imminent 10-K filing and its commentary to be closely viewed and listened to. Solid numbers and bullish guidance from management may be enough to ignite a near-term and sustainable rally.
By the way, IMCI is sending its own bullish messages. They have appreciably strengthened its sales and managerial team, with many believing the increased personnel is needed to support a surge in business in 2022.
Deserving Of A More Appropriate Valuation
That optimism is warranted. Remember, IMCI management can see behind the curtain, which should excite current and potential investors. In-play is the revenue-generating power from deploying cutting-edge Nodeware®, its SaaS-based vulnerability management platform targeting small and medium-sized enterprises.
Great for clients is great for IMCI since it inherently delivers more profitable SaaS-based solutions from company to client. Moreover, management commentary post the pending Pratum acquisition can help investors understand that a milestone acquisition can quickly become a 2022 catalyst. And since its new assets favorably complement IMCI's overall business and open the door for considerable cross-sale opportunities, revenue projections noted earlier could miss the mark by a substantial amount.
In other words, they can be appreciably higher. That would explain the recent company-wide team buildup. At the very least, hiring is a bullish indicator and is typically done ahead of growth, not after. That's where seeing behind the curtain has its advantages. And with jobs posted on its website, including management positions, the inference is that better times are ahead.
Prepared To Break Higher
Thus, investment consideration in IMCI is indeed timely. And trading ahead of expected excellent news may be a wise and timely consideration. Indeed, at about $0.20 per share, there is considerable upside in play by just valuing current operations. Factoring in post-acquisition revenues and milestones that can turn into catalysts, IMCI, at these levels, is a share price simply too good to ignore.
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