Ceridian HCM Holding Inc. (TSX: CDAY) is a payroll and human capital management solutions provider company, catering to its clients with 100 – 1,000 employees. The group's majority of the revenue is derived from its flagship Dayforce platform geared toward enterprise clients. 

 Key highlights

• Improved business operations: During FY21, the total revenue of the company was increased to USD 1,024.2 million vs USD 842.5 million in FY20. The biggest revenue driver for CDAY is its cloud segment, contributing nearly 85% of the total revenue. The total Dayforce recurring revenue (part of the cloud segment), witnessed a surge of USD 626.6 million in the reported period as compared to USD 500.2 million in the pcp. The live Dayforce customers increased from 4,906 in FY20 to 5,434 in FY21. The Dayforce recurring revenue per customer also increased to USD 108,631 in FY21 as compared to USD 98,655 in FY20. Below is the graphical representation of the total number of Live Dayforce customers at end of each year till 2021.

Source: Company filings

• Higher liquidity to meet the business expenses: For FY21, the company reported an increase in its cash and equivalents to USD 367.5 million as compared to USD 188.2 million in FY20. The cash flows from operation in FY21 were USD 48.8 million vs the cash flows used in operations of USD 30.2 million in the pcp. The increased liquidity will help the company to meet its business operational expenses and to carry out the strategic expansionary plans laid by the company.

• Improved Adjusted EBITDA: For FY21, the group has reported a higher Adjusted EBITDA of USD 162.5 million, against the Adjusted EBITDA of USD 159.0 million in FY20.

• Brighter outlook: For FY22, the group has raised its total revenue estimates in the range of USD 1,192 million to 1,217 million and the Dayforce recurring revenue, excluding float revenue in the range of USD 751 million to USD 762 million. On the profitability front, the company has notched up its Adjusted EBITDA in the range of USD 180 million to USD 195 million for FY22. The improvised outlook gives further strength to the investors in staying with the company for longer-term.

Risks associated with investment

The majority of the company's revenue is driven by Dayforce recurring revenue, which always possesses the biggest threat in terms of any substitute product coming to the market or the replaceable technology. The constantly changing technology, cyber security breach, data leaks, etc are a few of the key operational threats the company is exposed to. 

Financial overview of FY21 (Expressed in millions of USD)

 Source: Company Filing

• For FY21, the company reported an increase of 21.6% in its total revenue to USD 1,024.2 million vs USD 842.5 million in the pcp. The cloud segment witnessed higher recurring revenue of USD 712.9 million for the reported period vs USD 579.7 million in the pcp, giving a push to the total revenues in FY21.

• The total cost of revenue for FY21 increased to USD 641.9 million vs USD 501.2 million in FY20. The cost of maintaining recurring revenue rose to USD 262.4 million as compared to  213.3 million in pcp, adding weight to the increased total cost of revenue.

• The operating losses for FY21 were 35.5 million vs operating profit of 7.8 in pcp. On account of increased selling, general & administrative expenses in FY21, the company turned into operating losses.

• For FY21, the company reported Net loss of USD 75.4 million vs net loss of USD 4.0 million in the previous comparable period.  

Valuation Methodology (Illustrative): EV to Sales based valuation

 Stock recommendation

The company reported improved revenue numbers for the FY21 of USD 1,024.2 million as compared to USD 842.5 million in the FY20. Further, the current backlogs stood at USD 1,118.5 million, which is to be reported over the next three years under the revenue, which is a key positive. The improved outlook for FY22, with an expected increase in its total revenue in the range of 16% to 19% and the higher adjusted EBITDA of USD 180 million to USD 195 million, is depicting the brighter outlook of the company in the near future.    

On the valuation front, the stock is measured on the EV to Sales based multiple and we have considered RingCentral Inc., Coupa Software Inc., Five9 Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the last closing market price of CAD 79.10 on April 07, 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 on April  07, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.