Lightspeed POS Inc.

Lightspeed POS Inc. (TSX: LSPD) provides an omni-channel commerce-enabling SaaS platform. Its software platform provides customers with the functionality that they need to engage with consumers, manages their operations, accepts payments, and grow their business.

Key Updates:

• Q4FY21 Guidance: The group expects revenue for Q4FY21 within the range of USD 68 million and USD 70 million, while expects an EBITDA loss in between USD 12 million and USD 14 million. 

• Strong Q3FY21 Performance: The group reported strong growth in total customer locations and growth in GTV. In Q3FY21, the company reported total customer location at ~115,000, from 66,000 in Q3FY20. Gross Transaction Volume (GTV) grew to USD 9.1 million, increased from USD 6.2 billion in Q3FY20. Higher GTV indicates higher customers satisfaction and the strength of the company’s platforms, which is a key positive.

Performance Metrics (Source: Company Presentation) 

• Bolstered Liquidity Position: The company reported a higher cash and cash equivalent of USD 646 million in Q3FY21, increased from USD 210.969 million in FY20. We believe the above would likely to support the company’s upcoming working capital requirements.

Q3FY21 Financial Highlights:

• LSPD declared its third quarter FY21 results, wherein the company posted total revenue of USD 57.611 million, significantly higher from USD 32.275 million in the previous corresponding period (pcp). The increase was driven by strong momentum from Software and payments segment (USD 52.529 million versus USD 28.354 million).
• Gross profit stood higher at USD 33.277 million, higher than USD 21.584 million in Q3FY20, thanks to higher revenue, partially offset by higher direct cost of revenues (USD 24.334 million versus USD 10.691million in pcp).
• Operating loss widened to USD 44.609 million from USD 16.448 million Q3FY21 due to an increase in sales and marketing expense (USD 28.011 million versus USD 16.709 million in pcp), higher amortization of intangibles (USD 7.960 million versus USD 2.154 million in pcp) and higher research and development expenses (USD 16.400 million versus USD 8.344 million in pcp).
• Net Loss stood at USD 42.651 million, as compared to USD 15.762 million in the previous corresponding period.
• Current assets stood at USD 278.758 million, while total assets recorded at USD 1,546.723 million.

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Q3FY21 Income Statement Highlights (Source: Company Reports)

Risks: The company has reported a surge in debt component, which increased ~15% Q-O-Q to USD 50.1 million in Q3FY21. Moreover, the group is yet to report profitably from its operations, and hence, a continuation of the above trend would lead to extended losses.

Stock Recommendations:

The stock of LSPD has gained decently in the recent past, supported by strong revenue growth in Q3FY20. The stock of LSPD appreciated ~91% and ~177% in the last six months and one year, respectively and currently trading near the upper band of its 52-weeks trading range of CAD 104.98 and CAD 10.50, respectively. The group reported higher revenue and gross profit of USD 57.61 million and USD 33.25 million in Q3FY21, reflecting a growth of ~26% and ~21%, respectively. Therefore, given the solid topline performance of the company, and current price movement, we recommend a “Hold” rating at the closing price of CAD 90.18 on March 02, 2021.

 1-Year Daily Price Chart (as on March 02, 2021).  Source: Refinitiv (Thomson Reuters)

Spin Master Corp

Spin Master Corp (TSX: TOY) is a Canada-based children’s entertainment company which creates, designs, manufactures, and markets a portfolio of toys, games, products, and entertainment properties. The company’s operating regions are North America, Europe, and Rest of World.

Key highlights

• Increase in free cash flow: The company has streamlined its distribution and warehousing structure, considerably reduced inventory levels, lower its costs and expanded gross margins. All these initiatives helped the group is generating nearly USD 124 million in free cash flow in Q4 2020 and USD 232 million in FY2020. As a result, the company ended FY2020 with the strongest net cash position in history with USD 320 million.

• Guidance for 2021: The Company expects 2021 total revenue to increase mid to high single digits compared to 2020 and Adjusted EBITDA Margin to be in the mid to high teens, which is significant improvement over 2020.

Source: Company 

• Acquisition of Rubik's Cube: Recently, the company acquired world-famous Rubik's Cube. With this acquisition, the company would continue with Rubik's brand legacy, with plans for further innovation across the entire Rubik's portfolio and expanded distribution through the Company's global footprint, which will boost the Company's business in many ways. 

• Robust Liquidity:As of December 31, 2020, the company had unutilized liquidity of USD 838.0 million, comprising USD 320.6 million in cash and USD 517.4 million unutilized under its credit facilities. Moreover, the group believes it holds sufficient liquidity to meet its operational requirements without any interruption. 

Financial overview of FY 2020

Source: Company 

• For FY2020, the company posted almost flat sales of USD 1.57 billion, against USD 1.58 billion in the previous corresponding period (pcp).
• Gross profit for the reported period declined by 7.3% to USD 727.9 million, against USD 785 million in FY2019, primarily due to higher cost of sales, which increased 5.8% to USD 842.7 million in FY2020.
• The company posted an EBIT of USD 9.4 million in FY2020, compared to USD 85 million in pcp. The declined EBIT was primarily due to lower gross profit, coupled with higher administrative and depreciation cost. The company also booked foreign exchange losses of USD 27.6 million in FY2020.
• Income tax recovery worth USD 36.1 million helped the company to post a net income of USD 45.5 million in FY2020, against USD 64.3 million in pcp. 

Risks associated with investment

Many factors can play a pivotal role in the company's business, such as disruption in customer behaviour and consumer demand and disruption in the supply chain. Other than this, any further government-imposed restrictions and the closure of retail location could reduce the consumer traffic, which could affect the group's financials. 

Valuation Methodology (Illustrative): Price to Cash Flow 

All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The unlocking process post the mandatory lockdowns lend support to the Company's business, but they were forced to close again during the fourth quarter; thus, retail consumer traffic impacted. On the flip side, online and e-commerce channels continued to remain active in most countries. The management expects this trend to continue, as they believe that they are growing e-commerce faster than many of its competitors. The group holds robust liquidity of USD 838.0 million, comprising a record level of cash worth USD 320.6 million. Furthermore, they expect 2021 total revenue to increase mid to high single digits compared to 2020 and Adjusted EBITDA Margin to be in the mid to high teens, are key positives. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the closing price of CAD 36.01 on March 2, 2021. We have considered Hasbro Inc, Great Canadian Gaming Corp, Mattel Inc, etc. as the peer group for the comparison.

1 Year Daily Price Chart (As on March 2, 2021) Source: Refinitiv (Thomson Reuters)

Docebo Inc

Docebo Inc (TSX: DCBO) offers a cloud-based learning platform for both internal and external enterprise learning with real time tracking of training results, optimizing time, and reducing costs associated with traditional learning methods. 

Key Highlights:

• Change in Management: On February 21, 2020, the company reported the appointment of Trisha Price to its board of directors, replacing James Merkur. Ms Price has more than 20 years of financial services and technology experience in executive and product leadership roles at nCino, Inc., Primatics Financial and Fannie Mae.

• Sequential Improvement: During Q3FY20, the company reported higher revenue and gross profit of USD 16.10 million and USD 13.21 million, respectively, reflecting a growth of ~11% and ~13%, respectively, on Q-O-Q basis. Moreover, operating loss reduced drastically to USD 0.65 million, from a loss of USD 5.24 million in Q2FY20.

• Strong Client’s Growth: The company reported a consistent addition of clients over the years, supported by the successful implementation of its growth strategies. Notably, ~76% of Q3FY20 annual recurring revenue is represented by customers who chose multi-year contracts.

Customer Statistics (Source: Company Presentation)

• Impressive Q4FY20 Guidance: The group expects a solid performance growth in Q4FY20 and expects ARR within the range of USD 73.0 million to USD 74 million, reflecting year-on-year growth of 55% to 57%. Revenue is estimated within the range of USD 18.25 million to USD 18.75 million, which represents ~48% growth from Q4FY19.

Q4FY20 Performance Guidance (Source: Company Reports)

• Event Updates: The group would disclose its fourth quarter FY20 result on March 11, 2021.

Q3FY20 Financial Highlights:

• DCBO impresses with its quarterly results, wherein the company posted revenue of USD 16.096 million, significantly higher than USD 10.586 million in the previous corresponding period (pcp). The increase was supported by strong growth from Subscription Revenue segment (USD 15.101 million versus USD 9.802 million in pcp) and an increased income from Professional Services (USD 0.995 million versus USD 0. 784 million in pcp).
• Gross profit soared to USD 13.213 million, from USD 8.476 million in Q3FY19, thanks to the higher income, partially offset by an increase in cost of revenue (USD 2.883 million versus USD 2.110 million in pcp).
• Operating loss reduced to USD 0.654 million, from a loss of USD 3.083 million in pcp, supported by a higher gross profit, while an increase in research and development costs (USD 3.265 million versus USD 2.175 million in pcp) and higher general and administrative expense (USD 3.575 million versus USD 3.219 million in pcp) remained as a drag.
• The company reported a net loss of USD 1.158 million, improved from a loss of USD 3.742 million in Q3FY19.
• Cash and cash equivalents stood at USD 60.835 million, while total assets were recorded at USD 88.738 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company reported a significantly higher research and development expense, which has resulted to a subdued margin and continuation of the above trend would result into suppressed bottom-line.

Stock Recommendation:

The stock of DCBO appreciated ~126% and ~257% in the last nine months and one-year, respectively, supported by improved top-line growth and higher client addition in the recent quarters. Within the eLearning Management System (LMS) segment, the group expects the future growth to be supported by improved demand from analytics, automation and content creation etc. Notably, the LMS segment is growing almost 2x as compared to the industry, which is encouraging. Considering the above facts and current price movements, we recommend a ‘Hold’ rating on the stock of DCBO at the closing price of CAD 57.99 on March 02, 2021.

DCBO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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.