Kinaxis has a 29 per cent upside, Laurentian Bank says

Laurentian Bank Securities Nick Agostino is holding steady on Kinaxis (Kinaxis Stock Quote, Chart TSX:KXS) after the company’s first quarter financials. In an action note to clients last Friday, the analyst maintained his “Buy” rating and C$100.00 target price for KXS, which represents a projected return of 29 per cent at the time of publication.

Supply chain software company Kinaxis reported its Q1 on Friday, featuring revenue of $45.8 million, a 24-per-cent year-over-year increase, and Adjusted EBITDA of $16.0 million, up 29 per cent from a year ago. (All figures in US dollars unless noted otherwise.)

CEO John Sicard chalks up the strong quarter to Kinaxis’ expanded sales team and focused global marketing and says that he’s pleased with the overall health of the company’s global pipeline.

“As we have consistently demonstrated through marquee new partnerships and customer announcements, such as Lenovo this past quarter, our competitive position remains extremely strong. I remain firmly confident in our market position, our sales strategy, and our unique concurrent planning platform as we continue to execute against our growth plans,” said Sicard in a press release.

Agostino says Kinaxis’ sales came in-line with his estimate and ahead of the consensus forecast, while Adjusted EBITDA was above both his and the Street’s estimates. The analyst says that revenue from its SaaS segment was lower than expected but that the shortfall can be attributed to unfavourable timing in closing active contracts. Agostino says that management gave a confident guidance, with SaaS booking expected to accelerate through 2019 and a forecasted rise in Adjusted EBITDA margin range by two per cent to 25 to 27 per cent.

“Overall KXS posted a good quarter, in particular with EBITDA demonstrating strong margin upside. While SaaS was below expectations, we don’t view that as a slowdown but rather timing related as history has shown. We are encouraged by the 60 per cent year-over-year and 30 per cent quarter-over-quarter increase in inbound activity as a sign of demand interest. Further, while there is concern around the upswing in Term License revenues skewing 2019/2020 growth rates, we believe a three-year window is warranted to best measure growth/demand,” says Agostino.

The analyst is now calling for 2019 revenue and Adjusted EBITDA of $185.2 million and $53.0 million, respectively (was $185.2 million and $47.2 million, respectively).