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Descartes Systems is still a buy, says Haywood Capital Markets

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Descartes CEO Ed Ryan.
A fresh capital raise from Descartes Systems Group (Descartes Systems Group Stock Quote, Chart NASDAQ:DSGX) leaves the logistics company with a balance sheet primed for more M&A, says Daniel Rosenberg, analyst for 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.


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.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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