A new acquisition has Haywood analyst Pardeep Sangha feeling a little more bullish about Descartes Systems Group (Descartes Systems Group Stock Quote, Chart, News: TSX:DSG, Nasdaq:DSGX).
On December 23, Descartes announced it had acquired Miami, Florida-based trade data company Datamyne for (U.S.) $52.7-million in cash.
“Datamyne broadens our trade data content footprint beyond customs and regulatory data and into logistics trade data,” said Descartes CEO Ed Ryan. “This enables Descartes’s customers to make even better decisions using the Global Logistics Network and gives Datamyne customers access to the leading platform for shipment execution.”
Sangha says the price Descartes’ paid for Datamyne may seem a little steep, but the thinks it will prove to be worth it in the end.
“Datamyne adds trade data bank to Descartes’ assets. Datamyne, primarily operating in the US and in South America, collects, cleanses, and commercializes logistics trade data from over 50 nations,” notes the analyst. “The company gathers over 100M records each year from official filings with customs authorities and trade ministries. Datamyne has nearly 3,000 customers that will be added onto Descartes’ Global Logistic Network (GLN). (The) acquisition boosts revenue in the short term and cost synergies over time. We view this acquisition to be similar to the previous MK Data (July 2015), and Customs Info (July 2014) acquisitions in which accretive revenue is added on in early stages of the acquisitions, and we expect EBITDA to improve over time as cost synergies are recognized. Datamyne was generating around $13M in annual revenue, representing approximately 4x acquisition revenue multiple, and we estimate a low double digit EBITDA multiple. Although the Company has historically pursued acquisitions in the high single digit EBITDA multiple range, we believe the higher multiple is warranted by the addition of new customers, potential cost synergies, increased global reach, increase in amount of raw data, and cross-selling opportunities.”
In a research update to clients today, Sangha upgraded Descartes to “Buy” from his previous “Hold” rating and increased his one-year price target on the stock from (U.S) $24.00 to $24.50, implying a return of 15.3 per cent at the time of publication.
Sangha believes Descartes will generate Adjusted EBITDA of $70-million on revenue of $203.9-million in fiscal 2017. He expects these numbers will improve to EBITDA of $84.9-million on a topline of $240-million the following year.