Dye & Durham Ltd (TSX: DND) is engaged in providing cloud-based software and technology solutions designed to improve efficiency and increase productivity for legal and business professionals. The company has business operations in Canada and the United Kingdom, and its customers include law firms, financial service institutions, and government organizations.

Key highlights 

• Improving financial matrix and Volume: Despite the turmoiled period in 2020 and 2021, the Company maintained its pace and witnessed spirited performance across its revenue and adjusted EBITDA. The Company is continuously working closely with customers; thus, its presence is increasing along volume, which is appreciable. We believe the momentum to continue in the foreseeable future, as the Company had big capital investment plans in form of acquisitions to support future growth.

Source: Company 

• Elevated adjusted EBITDA: The company’s adjusted EBITDA for the three months ended June 30, 2021, increased from CAD 8.8 million to CAD 49.1 million or 459% compared to the equivalent period in the prior year. An increase was primarily due to increased revenue from higher transaction volume and acquisitions completed in the previous twelve months, along with synergies realized as a result of such acquisitions. On a brighter side the company expects its adjusted EBITDA at the level of CAD 200 million in FY 2022, which is a significant plus.

Source: Company

• Increase in cash flows from operating activities: In the reported period the company’s cash from operations increased to CAD 37.6 million compared to CAD 10.9 million in the previous corresponding period.
  

• Industry beating margins: Despite the hard time, the management’s solid determination helped them leaping the industry median margins on many fronts in Q4 2021, reflects the efficiency edge of the company, which is a key positive.
  

Financial overview of Q4 2021

Source: Company 

• The company’s revenue in Q4 2021, stood at CAD 84.4 million, an increase of CAD 70.2 million or 494% compared to the pcp. The significant revenue increase was primarily attributable to an increase in transactions during the period in connection with the economic recovery. The acquisitions also played a positive role.
• An operating income in the reported period increased to CAD 45.7 million compared to CAD 8.0 million in pcp.
• Although the company witnessed higher finance cost and depreciation expense in the reported period, still it posted net income of CAD 6.3 million against a loss of CAD 3.7 million in pcp.
  

Risks associated with investment

a significant chunk of the revenue is derived from cloud segment, and due to the limited entry barriers, the cloud segment might turn into a perfect competition market and would lead to pricing pressure which would eventually dampen the top line and cash flows of the company.

Valuation Methodology EV to Sales Based 

Stock recommendation 

The Company reported strong Q4 2021 results, which despite the challenges presented by the COVID-19 pandemic, reflected growth in its key financial metrics. The Company is continuously working closely with customers; thus, its presence is increasing along volume, which is appreciable. We believe the momentum to continue in the foreseeable future, as the Company had big capital investment plans in form of acquisitions to support future growth. Furthermore, the company expects its adjusted EBITDA at the level of CAD 200 million in FY 2022, which is a significant plus. Additionally, the company showcased its operational efficiency and leaped the industry median margins on many fronts, which is a key positive. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating on the stock at the closing price of CAD 38.21 on November 01, 2021. We have Real Matters Inc, Open Text Corp, Constellation Software Inc etc., as a peer group for comparison purpose.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on November 01, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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