Kinaxis is still undervalued, Laurentian Bank Securities says

Ahead of its second quarter financials, Laurentian Bank Securities analyst Nick Agostino is holding steady on his rating for supply chain SaaS company Kinaxis (Kinaxis News, Stock Quote, Chart TSX:KXS), saying that while there will likely be a shift in revenue mix in the Q2, the company’s sales growth is underpinned by a solid backlog.

In a equity research note to clients Thursday, Agostino maintained his “Buy” recommendation and $100.00 target, representing a projected 12-month return of 19.1 per cent at the time of publication.

Laurentian Bank says Kinaxis is still a buy…

Ottawa-based Kinaxis is reporting its Q2 fiscal 2019 on August 1 after market close with a conference call scheduled for the following morning. Agostino says that while Q1 sales strength was driven by outperformance in its Term License unit on heightened contract renewals, those sales should return to normalized levels in Q2, with growth instead coming from SaaS Subscriptions and Professional Services. The analyst is modelling year-over-year SaaS Subs sales growth of about 20 per cent for Q2 (versus 17 per cent in Q1).

“With Q1 results, we saw an upward revision in guided EBITDA margin to 25-27 per cent from 23-25 per cent. Q2 results may see KXS revise elements of its guidance (as per historical) based on backlog growth and improving visibility entering the second half of 2019,” writes Agostino.

The analyst’s target stems from a 9x 2020 sales estimate, with the company trading at a 0.7x premium to high-growth fliers (those with sales growth plus EBITDA margins over 50 per cent).

Agostino says, “KXS typically trades at a 2x premium to this group, justified by its high quality sales growth potential and disruptive technology. Recent SI announcements (Infosys and EXA) and contracts (Johnson Electric, Yamaha Motor) are driving renewed expansion, similar to early Q1/19.”

For the Q2, the analyst is calling for total sales of $42.8 million (versus $39.0 million a year prior) and adjusted EBITDA of $10.4 million (versus $11.2 million a year prior).