Descartes Systems is still a buy, says Haywood Capital Markets

In a client update on Wednesday, Rosenberg maintained his “Buy” recommendation and $44.00 target.

On Tuesday after market close, Descartes announced the start of a marketed public offering for six million shares, which with a further option for 900,000 shares would amount to about $269 million. The company intends to use the proceeds to repay outstanding debt, for general corporate purposes and future M&A activity. (All figures in US dollars.)

Rosenberg notes that as of end of last quarter, Descartes had $29.6 million in cash and debt of $242.7 million, which together represents a 2.1x net debt to EBITDA ratio.

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DSG’s M&A activity should continue unabated, says Rosenberg, who writes, “With 43 acquisitions completed since 2006 and a large runway of targets we expect the Company to continue to pursue disciplined accretive M&A and this capital raise only leaves the Company better positioned for larger potential deals.”

“Descartes represents a stable, cash generating business for investors,” he adds. “The Company has consistently demonstrated its ability to deliver strong results and execute on M&A. We believe investors will continue to be rewarded in the long-term as Descartes consolidates the sector. Along with its track record of disciplined M&A, our investment thesis is also predicated on the Company’s highly recurring revenue, high EBITDA margins, and strong management team.”

Rosenberg is calling for fiscal 2019 revenue and EBITDA of $275.2 million and $93.9 million, respectively, and fiscal 2020 revenue and EBITDA of $324.7 million and $119.0 million, respectively. His $44.00 target represented a projected return on investment of 12.8 per cent at the time of publication.