Ceridian HCM Holding Inc. (TSX: CDAY) is a payroll and human capital management solution targeting clients with 100-100,000 employees. The group's majority of the revenue is derived from its flagship Dayforce platform geared towards enterprise clients.

Key Highlights:

• Increase in revenue: During Q1FY22, the company reported an increase in total revenue to USD 293.3 million as compared to USD 234.5 million in Q1FY21. The recurring revenue from the cloud segment (which contributes 71.6% to the total revenue) witnessed a 26.9% growth in the sales to USD 210.2 million against the sales of USD 165.6 million in Q1FY21. The professional services and other segment witnessed a surge of 17.9% in sales to USD 45.4 million in the same period (Q1FY22) as compared to the sales of USD 38.5 million in Q1FY21.

• Higher adjusted EBITDA: During Q1FY22, the company saw a surge of approx. 29% in the adjusted EBITDA to USD 57.4 million against USD 44.5 million in Q1FY21. The adjusted EBITDA margin also saw a marginal increase to 19.6% in Q1FY22 which is higher than the adjusted EBITDA margin of 19.0% in Q1FY21.

• Outlook for Q2FY22: For Q2FY22, the management expects the dayforce recurring revenue, excluding the float revenue to increase by 27% to 29% resulting in USD 182 million to USD 184 million on GAAP basis. The sales from the cloud segment are expected in between USD 258 million to USD 260 million, with a growth of 23% to 24% on GAAP basis. Further, the adjusted EBITDA is expected to be between USD 45 million to USD 47 million for Q2FY22.

Risks associated with investment

The group is vulnerable to the changing technology or any substitute product coming to the market which can hamper the demand for the dayforce product. To add more, the company is facing challenges related to cyber security threats, data leaks, etc.    

Financial overview of Q1FY22 (Expressed in millions of CAD)

Source: Company Filing

• During Q1FY22, the group reported an increase in revenue to USD 293.3 million as compared to the revenue of USD 234.5 million in Q1FY21. The cloud segment revenue stood at USD 210.2 million in Q1FY22 against USD 165.6 million in Q1FY21, which contributed the maximum percentage to the over sales growth in the reported period.

• The gross profit for Q1FY22 increased to USD 103.1 million against the gross profit of USD 93.2 million in Q1FY21. The increased revenue was partially offset by the increased cost of revenue, which lead to a moderate increase in the gross profit during Q1FY22.

• The group posted net loss of USD 27.4 million during Q1FY22 as compared to the net loss of USD 19.2 million in Q1FY21.

Valuation Methodology (Illustrative): EV/ Sales based

Analysis by Kalkine Group

Stock Recommendation:

The group reported an increase in total revenue of USD 293.3 million during Q1FY22 against USD 234.5 million in Q1FY21, and the surge was also witnessed in the adjusted EBITDA to USD 57.4 million as compared to the adjusted EBITDA of USD 44.5 million in Q1FY21. Management is quite optimistic for the Q2FY22 stating the estimated rise in dayforce recurring revenue excluding float revenue of USD 182 million to USD 184 million with an increase of 27% to 29% on the GAAP basis and the adjusted EBITDA is estimated to be between USD 45 million and USD 47 million.  On the valuation front, the stock is measured on the EV/ Sales based multiple and we have considered Autodesk Inc., Five9 Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating on the stock of CDAY at the last closing price of CAD 73.68 on May 30, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as of May 30, 2022). Analysis by Kalkine Group

Note: The reference data has been partly sourced from REFINITV 

 Technical Analysis Summary

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