Stocks’ Details

Kinaxis Inc. (TO: KXS)

Kinaxis Partners 4flow to Aid Supply Chain Digital Transformation: Headquartered in Ottawa, Canada, Kinaxis Inc. (TO: KXS) provides cloud-based, software-as-a-service (SaaS) solutions to maximize business performance. On March 3, 2020, the company announced a partnership with 4flow, to provide RapidResponse deployment and support customers in digitizing their supply chains. In another update, the KXS stated that it has acquired Prana Consulting, a supply chain consultancy, to propose increased services to its customers.

Q4FY19 Financial Highlights for the Period ended 31 December 2019: KXS announced its quarterly results, wherein the company reported total revenue of US$56.3 million, up 47% year over year. Revenue increased on the back of higher SaaS revenue, which increased 26% in the quarter to US$32 million. Revenue from subscription term licence increased 4-fold to US$12.1 million. The company reported adjusted EBITDA of US$18.1 million, up a whopping 102% year over year. The company’s EPS increased from US$ 0.11 per share reported in the previous corresponding period to US$ 0.29 per share. The company recorded an increase of 21% in its cash from operating activities to ~US$ 8 million. Bookings during the quarter remained strong owing to multi-year SaaS revenue backlog, which increased 40% year over year. Region-wise, 71% of fourth-quarter revenues were derived from North American customers, whereas the remaining revenues were derived from European and Asian customers.

4QFY19 Highlights (Source: Company Reports)

FY2019 highlights: The company recorded total revenues of US$191.5 million, as compared to US$150.7 million reported in FY18. Adjusted EBITDA came in at US$57.7 million, up 38% year over year. FY19 SaaS revenue increased 22% year over year. The company’s EPS increased from US$ 0.54 per share reported in the previous corresponding period to US$ 0.87 per share.

Outlook: For FY20, the company expects total revenue to be in the range of US$211-215 million, with SaaS revenues expected to grow in the rage of 23% to 25%. Revenue from subscription term license is expected to be in the range of US$12-14 million. The management also targeting an adjusted EBITDA margin range of 20% to 23%.

Stock Recommendation: The stock is trading at CAD 116.08 (10 March 2020), down ~6%. The stock is trading near to its 52-week high of CAD 119.37. The stock has delivered an annual return of ~ 53.5%, and ~16% on a YTD basis. On the TTM Basis, the stock of KXS is trading at a P/E multiple (NTM) of 71x, higher than the peer group multiple of 41x.  It reflects that the growth drivers are already priced in at the current market price. Considering, the current trading levels, we have given an “Expensive” recommendation at the closing price of CAD 116.08 as on March 10, 2020.

1-Year daily price chart (as on March 10, 2020). Source: Thomson Reuters

Enghouse Systems Limited (TO: ENGH)

Incremental Contributions from Acquisitions a Key positive: Founded in 1984, Enghouse Systems Limited (TO: ENGH) is a publicly traded Canadian based software and services company.

Q1FY20 Financial Highlights for the Period ended 31 January 2020: ENGH announced its quarterly results, wherein the company reported total revenue of $110.7 million, up 28.6% year over year, on the back incremental impacts from acquisitions.  The company reported adjusted EBITDA of $35.3 million, as compared to $26.3 million reported in the year-ago period. Increase in EBITDA was primarily due to depreciation impact of right-of-use assets and synergies from acquisitions. Operating expenses for the quarter stood at $47.3 million, depicting non-cash amortization charges along with acquisition related costs. The company reported net income of $16.1 million or $0.29 per share, as compared to ~$14.9 million or $0.27 per share reported in the year-ago period. The company declared a 22.7% increase in its quarterly dividend to $0.135 per share, payable on May 29, 2020.

1QFY20 Highlights (Source: Company Reports)

Segmental Details: Software Licence revenues (25.7% of total revenues) rose 51.6% to $28.4 million. Hosted and maintenance services revenues (58.2%) went up 26.6% year over year to $64.4 million. Revenues from Professional services and Hardware contributed 13.7% and 2.4%, respectively

Balance Sheet & Cash Flow Details:  As of Jan 31, 2020, cash & cash equivalents were $111.5 million compared with $144.8 million as of Oct 31, 2019. Operating cash flow was $19.9 million in the reported quarter, as compared to operating cash flow of $24.1 million in the year-ago period.

Key Developments: On December 31, 2019, the company closed the acquisition of Dialogic and initiated integration into its Asset Management and Interactive segments. Additionally, ENGH has taken restructuring initiatives which is likely to improve its overall operating performance in the coming quarters.

Valuation Methodology: P/E Multiple Approach

P/E Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock is quoting at $48.91 with a market capitalization of ~$2.69 billion. The stock has delivered an annual return of ~ 40%, and ~20% on a three months basis. We have valued the stock using relative valuation method, i.e., P/E based approach. and arrived at a target price with an upside of lower double-digit (in percentage terms). Further, continued digital transformation is set to drive the software industry, which have set the stage for strong growth. Further, increased spending by enterprises on software procurement is a key catalyst. Considering the above factors, we give a “Buy” recommendation on the stock at the closing market price of $48.91, up ~1.5% as on 10 March 2020.

1-Year daily price chart (as on March 10, 2020). Source: 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.