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 related to traditional learning methods. 

Key Highlights:

• New Product Launch: On June 01, 2021, the company launched Docebo Learning Analytics, the newest addition to its multi-product learning suite. The above service would allow the customers with improved results of their training programs which would help in making the most strategic decisions for their operations.
• Positive Sectoral Outlook: The long-term outlook of the Learning Management System (LMS) sector remains extremely bright, as it allows organizations to achieve desired results through efficient course delivery, tracking of learning progress, advanced reporting tools and analytics. As most of the corporates are leaning towards result-oriented processes, we believe the demand of the sector is likely to remain high in the coming years. The LMS segment is expected to grow at a CAGR of ~21% from 2019 to 2025, while the majority of the opportunities are likely to arrive from the analytics, automation and content creation segments. We believe the group is well poised to take advantage of the opportunities coming from the industry.
  

Source: Company Presentation

Q1FY21 Financial Highlights:

• DCBO announced its quarterly result, wherein the company posted revenue of USD 21.742 million, higher than USD 13.530 million in the previous corresponding period (pcp). The growth was driven by revenue from new customers, as well as up-selling to existing customers.
• Operating expenses stood significantly higher at USD 23.502 million, as compared to USD 9.980 million Q1FY20. The increase was primarily due to increase cost of revenue, higher general & administrative costs, and a surge in sales & marketing expense. Adjusted EBITDA loss stood at USD 2.473 million, as compared to a loss of USD 2.389 million in pcp.
• Net loss for the year stood at USD 5.644 million, as compared to a net profit of USD 0.743 million in Q1FY20.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: As per the nature of the industry, the company requires constant innovations for its products in order to stay competitive. The arrival of new players with new offerings might dampen the company’s market share. Additionally, the firm witnessed a surge in its input costs in the recent past, and the continuation of the above trend would likely dampen the profitability of the firm.

Stock Recommendation:

The group has witnessed a strong up move in the recent past, and its growth rate stood almost double when compared to the industry median, which is a key positive. The company’s recurring revenue recorded a CAGR of ~65% from 2016 to 2020, and the momentum is expected to continue in the coming years, which is a key positive. On the valuation front, the stock is available at a price to cash flow multiple of 15.4x on an NTM basis, lower than the industry (Software & IT Services) median of 28.2x. Hence, considering the above rationale, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 65.45 on June 15, 2021.

One-Year Technical Price Chart (as on June 15, 2021). Analysis by Kalkine Group

Tecsys Inc

Tecsys Inc (TSX: TCS) is engaged in the development and sale of enterprise supply chain management software for distribution, warehousing, transportation logistics, point-of-use and order management.

Key Highlights:

• Higher Recurring Revenue denotes higher customer satisfaction: The company has reported a constant growth in its Annual Recurring Revenue (ARR), which is a key positive as it indicates revenue stability due to repetitive businesses. Notably, as of January 31, 2021, the company posted 20% growth in its annual recurring revenue, which is encouraging. The group reported ~69% of the ARR coming from the Complex Distribution like 3PL, Retail, Distributors, while the other 31% constitutes of health care segment. In 9MFY21, Net Retention Rate from Recurring Revenue stood at 109%.
  

• Strong Growth in profitability and cash flows: The company reported a surge in its profitability and cash flows, which indicates strong operating performance backed up by higher acceptability of the company’s products & services. Net cash from operating activities stood at CAD 10.995 million in 9MFY21, significantly higher than CAD 3.860 million in 9MFY20. On the other hand, Adjusted EBITDA stood at CAD 3.964 million Q3FY21 and CAD 12.303 million in 9MFY21, higher than CAD 2.648 million and CAD 8.320 million, respectively, a year ago.

Q3FY21 Financial Highlights:

• TCS announced its quarterly result, wherein the company posted revenue of CAD 31.942 million, as compared to CAD 26.847 million in the previous corresponding period (pcp). The increase was driven by higher income from professional services and Cloud, maintenance and subscription segment.
• Gross profit stood at CAD 15.407 million, as compared to CAD 12.834 million in Q3FY20, thanks to the elevated total revenue, partially offset by higher cost of revenue (CAD 16.535 million v/s CAD 14.013 million in pcp).
• The quarter was marked by lower Sales and marketing costs, partially offset by higher general and administration, and research & development expenses. Profit from operations stood at CAD 2.630 million v/s CAD 1.395 million in pcp.
• Net profit was recorded at CAD 1.847 million, soared from CAD 0.834 million in the previous corresponding period.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks: The company’s operations might be impacted due to price competition on account of the arrival of new players in the industry coupled with a change in the preferences of clients, which might lead to a lower demand scenario.

Valuation Methodology (Illustrative): EV to Sales

Stock Recommendation:

Most of the IT players are witnessing strong traction from cloud-based services, owing to the higher dependence of IT due to the ongoing pandemic and other security issues. We believe the momentum is likely to continue in the coming days, and the group is highly poised to take advantage coming from the industry. Notably, Cloud, maintenance and subscription revenue increased to CAD 39.0 million in 9MFY21, up 28% from the previous corresponding period, driven by higher SaaS bookings during the period. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a target upside of single digit (in percentage terms). For the said purposes, we have considered peers like Converge Technology Solutions Corp, Baylin Technologies Inc etc. Hence, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 41.00 on June 15, 2021.

One-Year Technical Price Chart (as on June 15, 2021). Analysis by Kalkine Group

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

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