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M Partners Shuttleworth Raises Target on Descartes to $12

Think border lineups are bad now? Without Waterloo's Descartes Systems they'd be a whole lot worse.

Think border lineups are bad now? Without Waterloo's Descartes Systems they'd be a whole lot worse.
Descartes Systems Group (TSX:DSG) yesterday reported its fiscal 2012 results.

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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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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