Docebo Inc

Docebo Inc (TSX: DCBO) is a Canada based company and offers a cloud-based learning platform for both internal and external enterprise learning. The company provides real-time tracking of training results, optimizing time, and reducing costs associated with traditional learning methods. The group’s offerings help users to centralize a broad range of learning materials and offer E-learning solutions, such as for partner training, sales enablement, social learning, employee onboarding, employee development and retention, and compliance training. The group operates across Europe, Asia and North America.

The company informed that it would disclose its second quarter FY20 results on August 06, 2020.

The company informed that it has collaborated with MHR International group. The partnership brings together MHR’s expertise in HR, payroll and analytics with Docebo’s learning technology. The above partnership would add the extensive capability to MHR’s HR offerings and would offer customers to manage and deliver training material with time-saving and cost savings measures and bring a new level of excellence to the employee experience.

Q1FY20 Financial Highlights: DCBO announced its quarterly results, wherein the company reported its revenue of USD 13.530 million as compared to USD 8.636 million in the previous corresponding period (pcp). The increase was driven by a 61% y-o-y increase in the Subscription revenue coupled with decent growth in Professional services. The Group’s revenue was further supported by robust growth in the annual recurring revenue. Gross profit stood at USD 10.697 million as compared to USD 6.785 million in pcp, thanks to the significant improvement in the revenue. The company reported an operating income of USD 0.717 million as compared to an operating loss of USD 1.859 million in pcp. The quarter was marked by an increase in general and administrative expense, sales and marketing, research and development expense and a higher share-based compensation cost. The company reported net income of USD 0.743 million as compared to a net loss of USD 2.538 million in Q1FY19, thanks to higher operating income.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: A significant portion of the Company’s revenue constitutes of recurring revenues. If the customers decided to discontinue their subscription, it might affect the group’s performance.

Stock Recommendation: The stock of DCBO reacted to its fundamentals and gained ~141% and ~1745 in the last six months and nine months, respectively. DCBO has done exceedingly well in the recent past, supported by strong growth in the subscription-based products, which is a key positive. The Company reported addition of clients in the recent past, amidst the current slow-down in the economy, which further indicates the strong product portfolio of the Business. The outbreak of COVID-19 has unfolded a higher utilization and interest of the customers in the platform. DCBO expects that the current environment will have a lasting impact and hence will promote remote working behavior, which will further underscore the importance of LMS for every enterprise. The group is focusing on executing its strategy to advance the platform and to remain responsive to the changing needs of customers and manage growth in a capital-efficient manner. Investors should note that the stock is trading above its 200-days simple moving average of CAD 38.27, indicating a bullish trend. Hence, considering the aforesaid factors, we give a ‘Hold’ recommendation to the stock at the closing price of CAD 39.23 on July 22, 2020.

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

Enghouse Systems Limited

Enghouse Systems Limited (TSX: ENGH) is a Canada based company, which provides enterprise software solutions focusing on remote work, visual computing and communications for next-generation software-defined networks. The products of the Company are designed to enhance efficiency and improve person to person communications within the enterprise. The Company has operations across Canada, the United States, the United Kingdom, France, Germany, Sweden, Israel, Croatia, Denmark, Norway, India, Japan, Hong Kong, Singapore, and Australia.

Q2FY20 Financial Highlights: ENGH announced its quarterly results, wherein the Company reported a significant increase in the revenue to CAD 140.9 million, reflecting a growth of 58% on y-o-y basis. The increase was driven by the internal growth and positive impact from the acquisition of Vidyo and Espial. Revenue, net of direct costs stood at CAD 101.201 million, up 63.9% on y-o-y basis, thanks to the higher reported revenue. Results from operating activities stood at CAD 46.276 million, grew exponentially by 73.8% on an annual basis. The Company reported Adjusted EBITDA at CAD 49.281 million as compared to CAD 27.176 million in Q2FY20, due to the positive impact of the acquisitions. Net Income for the period stood at CAD 27.089 million, up from CAD 16.537 million in Q2FY20 despite a higher cost related to amortization of acquired software and customer relationships and foreign exchange losses. Cash and cash equivalent stood at CAD 162.330 million while total assets stood at CAD 743.081 million as on April 30, 2020.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Valuation Methodology: EV to Sales based Relative Valuation (illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Risks: Cut in IT budget by the Corporate clients and entry of new IT players would pose a challenge to the company’s market share.

Stock Recommendation: The stock gained ~101% and ~114% in the last nine months and one-year, respectively due to higher demand from Cloud-based services in the recent past. The company has not been impacted by the outbreak of COVID-19 and has had an overall positive financial impact on its sales. The sales of the company’s remote conferencing and telehealth/financial services video platform - Vidyo were strong due to the remote working condition, which is a key positive. The Group is well poised to cater to the rising demand of the services within the segment and is confident of maintaining its quality. ENGH is looking to invest in the upgradation of the financial systems combined with the internal deployment of Enghouse products such as Vidyo that support remote work. Investors should note that the stock was trading above the 200-days simple moving average of CAD 51.75, indicating a bullish trend. We have valued the stock using EV to Sales based relative valuation method and arrived at the potential upside in single digit (in percentage terms). We have considered Kinaxis Inc (TSX: KXS), Descartes Systems Group Inc (TSX: DSG) and CGI Inc (TSX: GIB.A) etc., as a peer group. Hence, considering the afford mentioned facts, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 74 on July 22, 2020.

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

Disclaimer

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