Kinaxis still has upside, says Industrial Alliance

It’s been of the success stories of the Canadian tech sector for the better part of two years, but Industrial Alliance Securities analyst Blair Abernethy thinks there’s still a bit of upside in Kinaxis (Kinaxis Stock Quote, Chart, News: TSX:KXS).

In a research report to clients today, Abernethy initiated coverage of Kinaxis with a “Buy” rating and a one-year price target of $68.00, implying a return of 13 per cent at the time of publication.

Ottawa-based Kinaxis sells cloud-based supply chain software. The company’s solutions solve various aspects of sales and operating, inventory management, and demand planning. Abernethy thinks despite the company’s success to date it is really just scratching the surface of its potential.

“We believe that Kinaxis is still in the relatively early stages of a long-term secular manufacturing technology growth opportunity,” says the analyst. “While we acknowledge that some investors view Kinaxis’ stock as relatively expensive, we are positive on the underlying longer-term value creation prospects for the business.”

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Abernethy says these long-term trends include a large addressable market, a product (RapidResponse) that delivers a proven value proposition, and a SaaS revenue model with good profit margins.

“In our opinion,” says the analyst. “Kinaxis is well positioned to continue on its path of rapid, profitable growth for the next three to five years.”

Abrenethy believes KXS will deliver EBITDA of $29-million on revenue of $116-million in fiscal 2016. He expects these numbers will improve to EBITDA of $37.1-million on a topline of $142.1-million the following year.