Beacon Securities Ltd.| 66 Wellington Street West, Suite 4050, Toronto, Ontario, M5K 1H1 |416.643.3830|www.beaconsecurities.ca

Sangoma Technologies Corporation (STC - V) June 26, 2017

Undervalued Small Cap Gem In this report, we provide highlights from our recent marketing meetings

with STC's management team. We have also updated our target price

to reflect the VoIP Supply acquisition, which is expected to close in early

July. Based on management's commentary, we believe STC's strong

organic growth profile (YTD revenues are up 27% y/y) reflect several

items. First, we believe adoption of holistic Unified Communications

("UC") within enterprises remains low (in the sub -20% range), which offers

robust organic growth opportunities.

Second, we believe STC's ability to (now) offer a complete (and

integrated) UC platform has enabled it to gain wallet share and has also

enhanced its value proposition versus point solution competitors.

Furthermore, we believe STC's mid-of-the-range price point has enabled

it to remain very price competitive versus larger peers like Mitel or Cisco.

Third, we believe STC's M&A initiatives have created a large pool of

customers for cross-selling and also enhanced Sangoma’s geographic

sales footprint. Furthermore, its acquisition of Schmooze in 2015, who was

the primary developer of FreePBX, brought millions of (free) installs, who

now represent low cost potential leads as they move from free to

commercial upgrades.

Fourth, while the majority of customers still prefer on-premise solutions,

STC is aggressively marketing its cloud services as an alternative and also

moving customers towards subscription-based licenses, both of which

should help to improve the base of recurring revenues (~40% of revenues

prior to the acquisition of VoIP Supply) and therefore earnings visibility.

As it relates to the recently announced VoIP Supply acquisition, there

were several rationales for this transaction: 1) to improve STC’s e-

commerce channel sales strategy; 2) to access VoIP Supply's numerous

system integrator, reseller and enterprise customers; 3) to leverage VoIP

Supply's cloud sales channel (i.e. with STC's own cloud-based services);

and 4) to increase its revenue scale.

While STC did not disclose VoIP Supply's profitability profile (only its

expected revenue contribution of ~$15M), the transaction is expected

to be accretive and, based on distribution company-type multiples, we

think STC likely paid ~5x EBITDA for VoIP Supply prior to synergies. This

would imply a near-term revenue/EBITDA contribution of ~$15M and $1M

respectively (i.e. based on the ~$5M acquisition cost). Based on STC's

M&A track record (which has been incredibly successful), we believe

there will likely be meaningful upside from these levels over the next

several quarters.

The transaction is expected to close in early July. As such, we have

maintained our estimates pending the close. However, we have

increased our target price to $1.75 (was $1.50), which equates to 12x

(was 10x) FY19e EV/EBITDA (using current estimates). This is also

equivalent to 10x FY19e pro-forma EV/EBITDA assuming VoIP Supply

generates ~$1.5M in incremental EBITDA to Sangoma in FY19 (ending

June 2019).

$0.80

$1.75

Potential Return 119%

YE: Jun FY17E FY18E FY19E

Revenue (M) 25.9 29.5 33.7

EBITDA (M) 2.6 3.5 4.9

EBITDA margins 9.9% 12.0% 14.6%

GAAP EPS ($) 0.03 0.04 0.07

FY17E FY18E FY19E

EV/Sales 1.0x 0.9x 0.8x

EV/EBITDA 10.4x 7.6x 5.5x

P/E 26.7x 20.0x 11.4x

32.5

Shares O/S (FD) 34.6

Market Cap (Basic) $26.0

Market Cap (FD) $27.7

Cash $2.3 $0.07/sh

Debt $1.3 $0.04/sh

EV $26.7

gleung@beaconsecurities.ca

Stock Performance

Stock Data (M)

Shares O/S (Basic)

Gabriel Leung 416-507-3963

Marketing Update

Previous Close

12-month Target Price

Estimates (C$)

Valuation

Company Description

Markham-based Sangoma provides a comprehensive Unified

Communications (“UC”) solution to service providers, carriers,

enterprises, small-to-medium sized businesses, and original

equipment manufacturers.

Research Team

$1.75 (was $1.50)BUY (unch)

May 18, 2016 | Page 1 Gabriel Leung| 416.507.3963 | gleung@beaconsecurities.ca

Sangoma

Sangoma - Income Statement

FY13 FY14 FY15 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17 FY17 FY18 FY19

(C$) 30-Jun-13 30-Jun-14 30-Jun-15 30-Jun-16 30-Sep-16 31-Dec-16 31-Mar-17 30-Jun-17 30-Jun-17 30-Jun-18 30-Jun-19

Revenue 12,950,178 13,829,082 16,318,046 21,193,272 5,820,431 6,569,674 6,811,777 6,708,826 25,910,708 29,538,207 33,673,557

Y/Y Revenue Growth -5.9% 6.8% 18.0% 29.9% 23.5% 29.3% 28.5% 10.0% 22.3% 14.0% 14.0%

Cost of sales 4,465,551 4,574,556 5,351,335 6,785,161 2,054,980 2,219,213 2,333,793 2,301,127 8,909,113 10,062,896 11,361,152

Gross profit 8,484,627 9,254,526 10,966,711 14,408,111 3,765,451 4,350,461 4,477,984 4,407,699 17,001,595 19,475,311 22,312,404

Gross margins 65.5% 66.9% 67.2% 68.0% 64.7% 66.2% 65.7% 65.7% 65.6% 65.9% 66.3%

Expenses:

Sales and marketing 2,777,713 3,359,401 3,596,652 4,401,707 1,074,293 1,164,015 1,344,823 1,341,765 4,924,896 5,876,815 6,734,711

% of revenues 21.4% 24.3% 22.0% 20.8% 18.5% 17.7% 19.7% 20.0% 19.0% 19.9% 20.0%

R&D 2,827,648 2,594,514 3,437,852 4,608,540 1,193,845 1,284,712 1,300,525 1,300,525 5,079,607 5,450,525 5,900,000

% of revenues 21.8% 18.8% 21.1% 21.7% 20.5% 19.6% 19.1% 19.4% 19.6% 18.5% 17.5%

General and administration 3,080,595 2,416,295 3,269,863 4,958,014 1,351,792 1,385,967 1,405,127 1,405,127 5,548,013 5,720,000 5,880,000

% of revenues 23.8% 17.5% 20.0% 23.4% 23.2% 21.1% 20.6% 20.9% 21.4% 19.4% 17.5%

Foreign currency exchange (gain) loss -141,024 -56,472 -268,071 50,391 15,339 24,233 -25,462 0

8,544,932 8,313,738 10,036,296 14,018,652 3,635,269 3,858,927 4,025,013 4,047,417 15,552,516 17,047,340 18,514,711

Operating income -60,305 940,788 930,415 389,459 130,182 491,534 452,971 360,282 1,449,079 2,427,972 3,797,693

EBITDA 628,096 1,298,038 1,637,238 1,432,597 422,100 759,218 729,431 636,742 2,561,601 3,533,812 4,903,533

EBITDA margins 4.9% 9.4% 10.0% 6.8% 7.3% 11.6% 10.7% 9.5% 9.9% 12.0% 14.6%

Interest income -26,907 -26,809 -17,992 -2,694 0 0 0

Interest expense 198,000 0 46,282 108,761 24,565 23,116 27,071 27,071 101,823 108,284 108,284

Impairment of intangible asset 1,056,088

Accelerated amortization of patents

Impairment of goodwill 3,543,912

Business acquisition costs 0 0 297,145

Income before taxes -4,831,398 967,597 604,980 283,392 105,617 468,418 425,900 333,211 1,347,256 2,319,688 3,689,409

Income taxes -496,741 230,547 352,102 168,959 42,075 178,423 145,273 116,624 482,395 811,891 1,291,293

Tax rate 10.3% 23.8% 58.2% 59.6% 39.8% 38.1% 34.1% 35.0% 35.8% 35.0% 35.0%

Net income -4,334,657 737,050 252,878 114,433 63,542 289,995 280,627 216,587 864,861 1,507,797 2,398,116

EPS:

Basic -0.15 0.03 0.01 0.00 0.00 0.01 0.01 0.01 0.03 0.05 0.07

FD -0.15 0.03 0.01 0.00 0.00 0.01 0.01 0.01 0.03 0.04 0.07

Shares outstanding:

Basic 29,261,162 28,829,809 30,629,809 32,479,809 32,479,809 32,479,809 32,479,809 32,479,809 32,479,809 32,479,809 32,479,809

FD 29,261,162 28,829,809 30,629,809 32,479,809 33,021,912 33,237,533 34,576,650 34,576,650 33,853,186 34,214,918 34,034,052

Source: Company filings, Beacon Securities

Beacon Securities Ltd.| 66 Wellington Street West, Suite 4050, Toronto, Ontario, M5K 1H1 |416.643.3830|www.beaconsecurities.ca

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As at May 31, 2017 #Stocks Distribution

Buy 68 75% Buy Total 12-month return expected to be > 15%

Speculative Buy 10 11% Speculative Buy Potential 12-month return is high (>15%) but given elevated risk, investment could result in a material loss

Hold 6 7% Hold Total 12-month return is expected to be between 0% and 15%

Sell 0 0% Sell Total 12-month return is expected to be negative

Under Review 5 5%

Tender 2 2% Tender Clients are advised to tender their shares to a takeover bid or similar offer

Total 91 100%