Buy Kinaxis ahead of Q2 results, Laurentian Bank Financial says

In a preview of the company’s second quarter results, Laurentian Bank Securities analyst Nick Agostino says Kinaxis (TSX:KXS) is a buy.

On August 2, after market close, Kinaxis will report its second quarter results. Agostino thinks the company will generate EBITDA of (US) $10.9-million on revenue of $37.1-million.

The analyst says he will be watching for three things heading into the results: 2018 guidance, where he notes that the company has a track record of raising guidance as the year plays out, EBITDA margin, which he expects to come in at 29.5 per cent, and subscription revenue growth, where he sees some new tailwinds.

“Q2 marks the first clean quarter after 2 years of noise from BlackBerry and then Samsung,” Agostino says. “Adjusting for this, we see KXS showing a re-acceleration in Subs. revenue growth, both YoY and on a LTM basis. However, for Q2 we model LTM Subs. revenue growth of 22% to US$28.0M (combining Services and Term Licenses), with IFRS 15 limiting revenue growth on new timing policies for fixed-term and on-premise contracts. The new revenue recognition policy was reflected in Q1’s revised guidance and equates to ~$2M per quarter of deferred sales. Under old standards our LTM Subs. revenue growth estimate would have been ~26% for Q2, nearly flat to Q1 and on par with 2H/17. With KXS: 1) showing continued momentum in Life Sciences / Autos (including Toyota, Volvo Cars); 2) recently entering a new vertical, Process Manufacturing (BASF); 3) adding a Chief Revenue Officer, who is ahead of schedule in tooling European operations for growth in that region; and, 4) having maturing SIs (who are expected to drive new opportunities over NTM), we look for results to show Subs. revenue acceleration through 2H/18 and into 2019.”

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In a research update to clients today, Agostino maintained his “Buy” rating and one-year price target of $98.00 on Kinaxis, implying a return of 5.2 per cent at the time of publication.

The analyst thinks KXS will generate EBITDA of (US) $44.8-million on revenue of $154.8-million in fiscal 2018. He expects those numbers will improve to EBITDA of $61.1-million on a topline of $191.0-million the following year.