Bentley Systems, Incorporated

BSY Details

BSY on Acquisition Spree: Bentley Systems, Incorporated (NASDAQ: BSY) is involved in providing software-based solution globally for infrastructure engineering, thus aiding the work of civil, geotechnical, structural, and plant engineering as well as owner-operators of infrastructure assets. On 17 June 2021, the company informed the market that it has completed buyout Seequent for a purchase consideration of $900 million in cash and 3,141,361 BSY Class B shares. On 14 June 2021, BSY announced another acquisition of SPIDA Software. The addition of SPIDA within Bentley’s business will curb the challenges of transitioning to new renewable energy sources and will boost the expansion of 5G broadband networks. These acquisitions are in line with the company’s strategy to strengthen the ability of its infrastructure digital twins, thus addressing the environmental risks, enhancing resilience and sustainability.

1QFY21 Key Highlights: During the quarter, the company reported total revenues of $222 million, depicting a rise of 14% on pcp, primarily attributed to higher subscriptions revenues, which went up by 10.5% year-over-year. Recurring revenues for the last twelve months increased 10.7% on pcp and came in at $716.9 million. Adjusted net income in 1QFY21 came in at $64 million, up from $43.2 million in 1QFY20.  The company generated $132.8 million of operating cash flow in 1QFY21, up from $72.6 million reported in the year-ago period. It had $569.5 million of cash and cash equivalents as of March 31, 2021.

Revenues Highlights (Analysis by Kalkine)

Key Risks: A significant portion of the company’s revenue and a growing percentage of BSY’s operations comes from outside the United States. This implies that any changes in the legal, regulatory, social, political, and economic culture may impact the company’s financial operations.

Outlook: For FY21, BSY anticipates revenues to be in the range of $895 million and $920 million, depicting a rise of 11.7% to 14.8% year over year. The company expects ARR growth on a constant currency basis to be in the ambit of 8% to 10%. Adjusted EBITDA is expected to be between $285 million and $295 million in FY21.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last six months, the stock went up by ~70.5%. The stock is currently trading close to its 52-weeks’ high level of $65.81. On the technical analysis front, the stock has a support level of ~$59.48 and a resistance level of ~$66.09. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with a correction of high-single digit (in percentage terms). We believe that the company can trade at a slight premium as compared to its peer average, considering its diversified account base, robust 1QFY21 results, acquisition synergies and encouraging outlook. For the purpose, we have taken peers like Altair Engineering Inc (NASDAQ: ALTR), Autodesk Inc (NASDAQ: ADSK), to name a few. Considering the current high trading levels and indicative valuation, recent rally in the stock price, and the key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the closing price of $63.91, down by ~1.9% as on June 18, 2021.

BSY Daily Technical Chart, Data Source: REFINITIV 

Dynatrace, Inc.

DT Details

DT Unveils New Davis® Security Advisor: Dynatrace Inc. (NYSE: DT) is a software intelligence company, which is engaged in delivering application performance management, and artificial intelligence for businesses, monitoring cloud infrastructure as well as digital experience management. On 17 June 2021, the company informed the market regarding its latest Davis® Security Advisor, an improvement to the Dynatrace® Application Security Module powered by artificial intelligence software. The recent application security mechanically surfaces, selects, and details the software libraries and open-source packages to make real-time decisions and curb the most serious vulnerabilities first, thus reducing overall risk and driving innovations.

4QFY21 Key Financial Highlights: During the quarter, the company reported non-GAAP earnings of 15 cents per share as compared to 10 cents reported in the year-ago quarter. Revenues during the quarter came in at $196.5 million, which increased a whopping 31% year over year. Revenues went up 27% on pcp at constant currency basis. Notably, during the quarter, Subscription revenues came in at $182.8 million, up 35% year over year. In 4QFY21, non-GAAP gross margin came in at 85% as compared to 83%, driven by higher subscription gross margin. The company ended the quarter, with cash balance of $324.96 million, and long-term debt amounting to $391.91 million. Unlevered free cash flow during the quarter stood at $85.6 million, up from $63.3 million reported in the year-ago period.

Revenues Highlights (Analysis by Kalkine)

Risk Analysis: The company’s business is exposed to market risk primarily as a result of fluctuations in foreign currency exchange rates and interest rates and inflation. Further, competition from peers, challenges of COVID-19, and the global threat environment remains add to the woes.

Outlook: For 1QFY22, the company anticipates total revenue to be in the ambit of $202 million and $204 million, depicting a rise of 30-31% on pcp. Non-GAAP earnings are likely to be in the range of 14 cents and 15 cents per share. Coming to FY22 outlook, revenues are expected to be in the range of $885 million and $900 million. The company expects subscription revenues between $834-$848 million. Non-GAAP earnings are now expected between 59 to 62 cents per share.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last nine months, the stock went up by ~41.4%. The stock is currently trading close to its 52-weeks’ high level of $57.98. On the technical analysis front, the stock has a support level of ~$53.9 and a resistance level of ~$62.3. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with a correction of high-single digit (in percentage terms). We believe that the company can trade at a slight premium as compared to its peer median, considering strong 4QFY21 results, robust product portfolio, higher subscription revenues and decent outlook. For the purpose, we have taken peers like Splunk Inc (NASDAQ: SPLK), Datadog Inc (NASDAQ: DDOG), to name few. Considering the current high trading levels and indicative valuation, recent rally in the stock price, and the key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the closing price of $57.05, up by ~1.68% as on June 18, 2021.

DT Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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.