Kinaxis is a buy, Laurentian Bank says

Ahead of next week’s first quarter 2018 financials from Kinaxis Inc. (Kinaxis Stock Quote, Chart, News: TSX:KXS), Laurentian Bank Securities analyst Nick Agostino is looking for evidence of accelerating subscription growth from the supply chain management company. The analyst is maintaining his rating of “Buy” with a target price of C$98.00.

Cloud-based SaaS provider Kinaxis will report its fiscal Q1/18 on May 2, with expectations of a healthy uptick in subscriptions, sales and earnings. Consensus estimates are calling for total sales of $37.3 million (all figures in US dollars unless noted) and adjusted EBITDA of $9.4 million, while Agostino’s estimates are a touch lower.

“We look for sales ($36.7 million) and EBITDA ($9.2 million) just below consensus, with EBITDA margin of 25.1 per cent and adj. EPS of $0.23 in line with consensus,” says the analyst in a client update on Thursday. “We estimate KXS ended Q1 with $166.0 million in net cash including $5.5 million in CFO (excl. w/c).”

Agostino expects the company’s subscription numbers to grow by 23 per cent, up from 19 per cent during the previous quarter. “Meeting our growth estimate would give us increased comfort in our modelled YoY growth acceleration through the balance of 2018 from an adj. low of 28 per cent to 34 per cent in Q4, and offer a further validation of the growing SIs contribution,” he says.

The analyst is hoping for management guidance on a number of issues: (1) an update on KXS’s SI channel partners; (2) an indication of pipeline prospects and customer wins, particularly in Asia and Europe; (3) an update on ARPU expansion; (4) a look at growth in deferred revenue to gauge new and existing customer wins; (5) details on the Deloitte/Merck market-specific collaboration capabilities for Kinaxis’ RapidResponse software; and (6) details on any measured impact from recent senior management hires.

Based on a valuation of 9x 2019E sales, Agostino asserts a target price of (C) $98.00, representing a projected 12-month return of 19.2 per cent at the time of publication.