With record attendance at its annual user conference and glowing reports on the company’s RapidResponse platform, analyst Richard Tse of National Bank Financial Markets is feeling comfortable in his growth outlook for Kinaxis (Kinaxis Stock Quote, Chart, News TSX:KXS), which he says will have a strong 2020.
Tse provided an update to clients on Wednesday and reiterated his “Outperform” rating and $100.00 target price, which translated to an estimated total return of 18 per cent at the time of publication.
Cloud-based supply chain management SaaS company Kinaxis held its largest-ever ‘Kinexions’ conference in Orlando, Florida, this past week, where it unveiled new and expanded applications and capabilities for its RapidResponse planning platform.
“Business transformation is becoming critical to countering industry volatility and provides significant competitive benefits and new market opportunities. Our continued innovation is helping our customers drive improved visibility and agility and puts their supply chains at the center of the digital enterprise,” said John Sicard, CEO of Kinaxis, in a press release.
Tse said that aside from the record crowd and ‘extremely positive’ commentary from KXS’s customers, there were two main takeaways. First, Kinaxis is opening up RapidResponse and its core algorithms to developers, allowing users to write their own applications and/or custom algorithms on Kinaxis’ IP, a move which Tse thinks will allow the company to pick up incremental revenue while increasing the stickiness of RapidResponse customers while potentially building a catalogue of transferable applications across industries.
Secondly, Tse noted that Kinaxis is generating more buzz surrounding its demand sense scaling, a capability that looks into the demand side as opposed to supply side to enhance the planning process of its platform, which so far has produced “meaningfully supportive results,” according to Tse.
The analyst says that while Kinaxis has been laying out its long-term product roadmap over the past three years, the end result is in sight, meanings that the company will be entering a product cycle over the next 12 months which is typically positive for enterprise software companies, according to Tse.
“Bottom line, we continue believe an accelerated conversion of Kinaxis’ expanded pipeline into 2020 given our view on the average sales cycles relative to when that sales pipeline began expanding. Looking out further, with an estimated 2,000 prospective clients in existing verticals and a total of 5,000 total potential opportunities across all verticals, Kinaxis’ penetration rate is still less than 5 per cent on a conservative basis. If that weren’t enough, we believe the Company just started to scale outside North America with most of its new hires in recent years coming internationally, which has driven a meaningful lift in the Company’s pipeline particularly in Europe,” Tse writes.
The analyst thinks that Kinaxis will generate fiscal 2019 revenue and EBITDA of $185.7 million and $49.8 million, respectively, and fiscal 2020 revenue and EBITDA of $210.1 million and $55.4 million, respectively.
Kinaxis has been a winner of a stock in recent years but it ran into trouble over the last stretch of 2018. KXS crested the $100.00 mark back in July of 2018 but has been toiling in the $75.00 – $85.00 range for much of 2019.