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:

• Improved liquidity: The company reported an increase in its cash and cash equivalents to USD 354.8 million during Q1FY22 against USD 339.6 million in Q1FY21. Also, the net cash from the operating during Q1FY22 was USD 5.5 million when measured against the net cash used in operating activities of USD 4.5 million in pcp. The strong liquidity helps the company to meet its day-to-day operational expenses along with carrying out the expansionary plans as well.

• Higher revenues: For Q1FY22, the company reported an increase of 25.1% in the total sales to USD 293.3 million as compared to the total sales of USD 234.5 million in Q1FY21. The total cloud recurring revenue surged to USD 210.2 million during Q1FY22, against the total cloud recurring revenue of USD 165.6 million in pcp. The sales from professional services and other segments stood at USD 45.4 million in the reported period (Q1FY22) when measured against the sales of USD 38.5 million in pcp.

• Improved outlook: The management is optimistic for FY22, stating the dayforce recurring revenue (excluding float revenue) is estimated to be between USD 182 million and USD 184 million, an increase of 27% to 29% in Q2FY22. Also, the total revenue for Q2FY22 is expected to range from USD 293 million to USD 296 million, an increase of 17% to 18%, along with adjusted EBITDA close to USD 45 million to USD 47 million. For FY22, the adjusted EBITDA is estimated to be between USD 190 million and USD 205 million, and the total revenue is expected to range from USD 1,208 million to USD 1,230 million, an increase of 18% to 20%. 

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 USD)

Source: Company Filing 

• The company reported an increase in its total revenues to USD 293.3 million in Q1FY22, as compared to USD 234.5 million in Q1FY21. The cloud revenue (which contributes approx. 86% to the total revenue) witnessed an uptick in the sales to USD 210.2 in Q1FY22, against USD 165.6 million in pcp, pushing the revenue higher.

• The gross profit of the company also increased to USD 103.1 million in the reported period (Q1FY22) as compared to the gross profit of USD 93.2 million in the pcp.

• For Q1FY22, the company witnessed an increase in the net losses to USD 27.4 million as compared to the net losses of USD 19.2 million in Q1FY21.

Valuation Methodology (Illustrative): EV to 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 adjusted EBITDA also rose to USD 57.4 million in Q1FY22, as compared to the adjusted EBITDA of USD 44.5 million in Q1FY21. The management is optimistic about FY22 and stated the total revenue for Q2FY22 to be between USD 293 million and USD 296 million and the adjusted EBITDA is expected to range from USD 45 million to USD 47 million. For FY22, the group is anticipating revenue between USD 1,208 million and  USD 1,230 million. On the valuation front, the stock is measured on the EV/ Sales based relative valuation multiple and we have considered Intuit 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 58.58 on June 17, 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 June 17, 2022). Analysis by Kalkine Group

Note- The reference data has been partly sourced from REFINITV

Technical Analysis Summary

Disclaimer

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