Dye & Durham Limited

Dye & Durham Limited (TSX: DND) is a Canada based company which offers business support services to organizations, government, and private firms through its cloud-based platform. The group offers legal services like due diligence, securities filings, litigation solutions, investigative services, court filing, KYC services, and financial risk management services.

Q3FY20 Financial Highlights: DND reported its quarterly results, wherein the Company posted revenue of CAD 17.22 million, reflecting a growth of 68% on y-o-y basis, driven by organic growth and additional revenue from the Acquisitions. The Company posted adjusted EBITDA of CAD 10.255 million, up 56% over the previous corresponding quarter. The quarter was marked by higher technology and operations expense, increased direct costs, higher general and administrative expense. The Company reported a loss before taxes at CAD 1.973 million as compared to a loss of CAD 1.457 million in the previous corresponding period (pcp). The decline was attributable to higher operating costs, an increase in finance costs coupled with higher acquisitions, restructuring and other costs. The Company posted a net loss for the period at CAD 1.270 million, lower from CAD 1.457 million in pcp, supported by current and deferred tax recovery. The Company ended the quarter with cash and cash equivalent of CAD 5.19 million, while total assets stood at CAD 158.013 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: Further breakout of the COVID-19 would affect the performance of the conveyancing services, as the further outbreak might result in the closure of courts and government offices in particular. Further, sustained disruptions in global supply chains could limit or inhibit its customers’ operations, including their ability to make timely payments. Further, the company is operating in cloud-based software business where the competition is increasing day by day. Increasing competition might affect the group’s financial performance.

Stock Recommendation: The stock was listed on TSX on July 17, 2020 and gained ~41% in the last one month, outperforming the index by ~37%. Dye & Durham offers of cloud-based software and technology solutions which are designed to improve the efficiency and productivity for legal and business professionals. The group provides complex data services and workflow, which are extremely useful for information and regulatory requirements. The cloud-based model has allowed the Company to scale its revenue significantly, by adding services and transaction volume to its Platform while maintaining a relatively fixed operational cost-base. The Company has operations across Canada and the United Kingdom and has an impressive clientele of 25,000 legal firms, financial service institutions, and government organizations, etc., which is impressive. We expect, the Company would enhance its footprints with its recent acquisition Atsource and SDG and would likely to deliver improved business prospects in the coming quarters. The Company has a unique product line, and the revenue generation is directly linked with growing law firms across the globe. The services of the Company are focused on increased productivity of the firms and provide benefits to the professional practitioners and financial service institutions. The Company has a presence in the real estate segments too; wherein the group provides solutions to simplify and expedite the process of buying, selling, and financing real estate and connects with participants and offers a secure and efficient means of completing transactions online. With expected improvement in the real estate demand, we expect improved prospects for the above segment too. On the valuation front, the stock is trading at Price to Sales multiple of 13.97x on a TTM basis. The group is operating in the highly growth-oriented industry, and the business prospects look attractive; however, there is limited history available as the group is recently listed on the stock exchange. Hence, considering the aforementioned facts and risk involved, we recommend a ‘Speculative Buy’ on the stock at the closing price of CAD 20.95 on August 17, 2020.

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

Absolute Software Corp

Absolute Software Corporation (TSX: ABT) is a software & computer services company, which is engaged in the business of developing, supporting and marketing of data risk management and endpoint security solutions to customers from government, education, healthcare and commercial sectors. The solutions offered by the Company are based on SaaS (software as a service) business model.

Recently, the Company confirmed the launch of new platform capabilities offering IT and Security teams for organizations which would automatically generate and distribute scheduled reports to ensure compliance across the enterprise and provides easy accessibility and managing of endpoint devices at scale; and understand if critical endpoint controls are healthy and working effectively.

Q4FY20 Financial Highlights: ABT announced its quarterly results, wherein the Company posted revenue of USD 27.2 million, reflecting an increase of 7% on y-o-y basis. Total Annual Recurring Revenue (ARR) stood at USD 108.3 million, representing an increase of 11% on y-o-y basis. The growth was driven by the positive impact from continued expansion in its Global Resilience Ecosystem coupled with increased capabilities to its Absolute Resilience® platform to help protect devices and sensitive data for remote endpoints. Adjusted EBITDA, on pre-IFRS 16 basis stood at USD 7.5 million, reflecting an increase of 53% on y-o-y basis. Adjusted EBITDA margin stood at 28% against 19% recorded in Q4FY19. The quarter was marked by an increase in research and development expense, a lower general & administrative expense and a significantly higher share-based compensation expense. Operating income surged to USD 3.53 million, as compared to USD 3.022 million in the previous corresponding quarter. The Company reported its net income at USD 2.2 million, as compared to USD 2.041 million in pcp.

Q4FY20 Income Statement Highlights (Source: Company Reports)

Risks: Major disruptions to the respective businesses of the Company’s principal customers and/or PC OEM and other partners would have a material impact on the Company’s business, operations, and revenues.

Valuation Methodology: Price to CF Based Relative Valuation (Illustrative)

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

Stock Recommendation: The stock of ABT appreciated ~45% and ~83% in the last six months and nine months, respectively. Further, the stock closed above the 200-days simple moving average of CAD 10.75, indicating a bullish trend. The Company are offering services which are useful to people who are working from home, help enterprises to control its devices and critical endpoint controls with proper security. Further, the Group provides services which are useful for school administrators and educators with insights to support distance learning programs. The Company is catering to the new-generation businesses, and the demands are likely to continue in the coming days, which indicates the stability of income. The Company has collaborated with industry leaders such as Lenovo, HP, etc., and we believe the above partnerships would likely to enhance its presence and would improve the overall financial performance. We believe, the Company has a niche product-line and indulges in offering virtual private network (VPN) applications, ensuring uninterrupted remote access to corporate and school networks, business and education applications as well as data for remote workers. Considering the current environment created by COVID-19 pandemic, we expect higher demand for the Group’s offerings as it enables the people to operate remotely, which is a key positive for the business. We have valued the stock using P/CF based relative valuation approach and arrived at a target price offering single-digit upside potential (in % terms). We have considered industry (Technology) median on NTM basis. Hence, we recommend a ‘Hold’ rating on the stock at the Closing price of CAD 15.17 as on August 17, 2020.

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

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