M Partners Shuttleworth Raises Target on Descartes to $12

Revenue was up 15% from 2011’s $99.2 million topline, to $114-million. Earnings were up too; the company posted net income of $12-million, a 4% bump from 2011’s $11.5-million number. It was Descartes sixth straight year of topline growth after 2006 revenue of $45.7 million came in slightly under 2005’s number.

M Partners Ron Shuttleworth says Descartes is a category busting company. Until now, the M Partners analyst arrived at a valuation on Descartes by combining industry valuations of traditional logistics vendors and software-as-a-service vendors, then derived a mid-point multiple based on blending those two categories.

But Shuttleworth says that Descartes bears little resemblance to logistics companies such as as Ariba (NASD:ARBA), which has a 3 Year Compound Annual Growth Rate of 12.4% or Manhattan Associates (NASD:MANH), which has a 3 Year CAGR -0.8%. Instead, suggests Shuttleworth, Descartes is more like SalesForce.com, which has a CAGR of 28.2% or NetSuite, with a CAGR of 15.7%. Companies in this category; software as a service/cloud vendors for the supply chain, deserve higher EBITDA multiples, he reasons.

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In a morning note to clients today, Shuttleworth applied these new metrics to Descartes. The result? M Partners is maintaining is BUY recommendation on the Waterloo-based company, but raising his twelve-month target to $12 from the previous twelve-month target of $10. Shuttleworth says this “implies a EV/EBITDA multiple of 18.2X based on a FY’13 EBITDA estimate of $37.9M.”

After nearly becoming a dot-bomb casualty, former Gartner analyst Art Mesher rescued Descartes, which he estimated was days away from folding. The company has since become a leader in global logistics technology; solutions that help its customers make and receive shipments.

Descartes now finds itself at the cutting edge of a trend; across the globe governments are looking to untangle and standardize their logistics operations. An increasing amount of evidence suggests a clear link between logistics performance and economics growth. The World Bank’s Logistics Performance Index showed that low and middle income countries such as Brazil and Columbia have given their economies a shot in the arm through improved logistics, while other emerging economies, such as Turkey, have been hurt by a lack of logistics infrastructure.

At press time shares of Descartes were down 2.2% to $8.31.

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