In a research update to clients today, Tse maintained his “Outperform” rating and one-year price target of $100.00 on Kinaxis, implying a return of eleven per cent at the time of publication.
“We had the opportunity to meet investors with Kinaxis management late last week. We came away from those meetings feeling confident in our investment thesis where we see a stock that’s undervaluing a considerable runway for growth,” the analyst says. “In our view, the biggest takeaway was that Kinaxis is actively making operational changes to scale this business towards $500 mln in subscription revenue. With respect to those changes, much of what we heard was consistent with our (recent) independent channel checks – which is always reassuring when the two line up. Bottom line, KXS remains a favourite name in our technology coverage universe. And while we recognize the valuation may be on obstacle for some based on the shorter-term (one-year) outlook, we believe the most appropriate way to value the name must capture the Company multi-year growth profile, especially considering its market share is less than 5% today – as such, we use a multi-stage DCF. We rate KXS an Outperform with a $100 target.”
Tse thinks Kinaxis will generate EBITDA of (all figures USD) $39.5-million on revenue of $153.7-million in fiscal 2018. He thinks those numbers will improve to EBITDA of $53.3-million on a topline of $187.5-million the following year.