In a research update to clients today, Agostino maintained his “Buy” rating on Kinaxis, but raised his one-year price target on the stock from $70.00 to $75.00, implying a return of 13.2 per cent at the time of publication.
Agostino said he heard presentations from Kinaxis clients such as Ford, Xilinx, Vizio, Celestica, Cisco and Avaya, who each discussed their own experience with Kinaxis’s RapidResponse at the Ottawa-based company’s user conference, which took place between October 11 and 13. He says the presentation from Ford stuck with him, in particular.
“Ford’s experience exactly what investors are paying for,” says the analyst. “A Ford executive indicated the car company set out to materially alter its supply chain system to improve its financial performance following the 2008-09 great recession. Prior to any changes, Ford lacked any global data standard and used “spread sheets everywhere” to manage its supply chain.”
Agostino explains that Ford’s process for improving its problems was a lengthy one.
“Starting mid-2011, Ford set out to globalize and fully integrate its supply chain operations, moving away from a regional model. The aim was to “consolidate global data to see global and regional problems” by creating a single source for all global demand and capacity data, and having multiple scenario capability. Much of the new supply chain was built with internal resources, but in S&OP Ford had the consolidated regional data but lacked a solution to tie it into its global model ambitions. With the aid of its advisor Deloitte, Ford worked with 7 potential suppliers over a 12 month period (including KXS), this list was narrowed to 2 with each undertaking a 6 month pilot program. The final S&OP contract was awarded to KXS. From our conversation with Deloitte, we understand the consultant recommended RapidResponse to Ford given the car manufacturer’s need for a real-time solution across silos, as opposed to a silo optimization solution. Beyond Deloitte’s presence in the process, which has a better understanding of RapidResponse following this large undertaking, we believe the Ford example illustrates some of the reasons for the long sales cycle. Working in KXS’s favour was its comparatively favourable standing in the latest Gartner S&OP Quadrant report.“
Agostino believes Kinaxis will post Adjusted EBITDA of $43.79-million on revenue of $143.59-million in fiscal 2017. He expects these numbers will climb to EBITDA of $56.51-million on a topline of $178.27-million the following year.
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