With October doing what October often does to the stock market, National Bank Financial analyst Richard Tse says this is a great time to add some Kinaxis (Kinaxis Stock Quote, Chart TSX:KXS) to your portfolio.
Tse spent part of this week at Kinexions ’18, the company’s annual user conference. The analyst said the event was well attended, with customers representing more than two-trillion in revenue from 21 countries. Overall, he says, the experience supported his bullish take on KXS.
“Bottom line, what we saw and heard reinforced that prevailing view where we continue to see a multi-year growth story and potential upside price appreciation for KXS,” Tse says. “With that backdrop, we’d continue to take advantage of the recent market driven pullback as one of the core names in tech going forward.”
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 15 per cent at the time of publication.
Tse thinks Kinaxis will generate EBITDA of (All figures USD) $43.0-million on revenue of $156.1-million in fiscal 2018. He expects those numbers will improve to EBITDA of $54.5-million on a topline of $190.2-million the following year.
Tse adds that while many companies have annual user conferences, this one is different in that engagement is not flagging. The analyst says not only does KXS have runway in terms of new customers, its existing customers could still have a serious positive impact on future revenue.
“Consistent with past Kinexions, we found this year’s event to be equally engaging from an existing and prospective customer perspective. To us, that’s somewhat surprising largely because the level of engagement at these events tends to fade over time in our experience – yet, we noticed the level engagement appeared to have increased this year based on our numerous customer meetings with a number of high-ranking names in the Fortune 500,” he notes. “Why? What we noticed was that many of Kinaxis’ customers are still in the early days of their implementations, particularly the large ones where we learned a number of notable names have only deployed a fraction of their target – anecdotally, we’d estimate less than 10% of those companies we talked to had fully deployed RapidResponse, Kinaxis’ core product. We also learned in those discussions that of those names that have deployed to their initial target – many were adding more licenses given the success of those deployments. To paraphrase a customer, they believed they only fully appreciated the power of the platform once it was fully deployed which became the impetus to add additional licenses. Given that backdrop, it’s not unreasonable to assume the existing customer base has the potential to double or triple the revenue base on its own even if Kinaxis were to stop adding customers – which we know is not the case given the robust pipeline.”
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