The stock is looking close to fully valued in the near term, but there is opportunity in Kinaxis (TSX:KXS) for investors with a longer time horizon, Canaccord Genuity analyst Robert Young says.
Young recently attended Kinexions ’17, the Ottawa company’s user conference, in Orlando. He says that while some prospects were notable in their absence there were many large and impressive new ones. He says he is optimistic that the company can add large enterprise customers to its mix, although he cautions that its sales cycle remains a long one. And although Young believes the company will post 25 per cent top line growth with EBITDA margins of +25% and positive free cash flow, he says valuation is still a bit of a sticking point.
“We remain concerned on valuation given uncertainty related to a large Asian customer loss, reduced subscription growth of ~22% in 2017, and the strong CAD which has been a headwind on valuation,” the analyst explains. “Kinaxis remains a very strong combination of revenue growth and EBITDA margin, and we believe this supports a premium valuation. That said, our analysis suggests a fair multiple of 8x on F2018E EV/Sales which is where we have set our target price. Kinaxis trades at 10.2x 2017E EV/Sales and 8.4x EV/2018 Sales which is a significant premium to the peer average for larger SCM SaaS Vendors of 5.4x and 4.7x.”
In a research update to clients today, Young maintained his “Hold” rating and one-year price target of $75.00 on Kinaxis, implying a return of 6.9 per cent at the time of publication.
“We remain HOLD rated but believe the shares represent an opportunity for investors with a longer horizon,” the analyst notes.
Young thinks Kinaxis will generate EBITDA of (U.S. dollars) $36.2-million on revenue of $132.7-million in fiscal 2017. He thinks those numbers will improve to EBITDA of $42.7-million on a topline of $162.3-million the following year.