We may see guidance head to the upside with the latest quarterly release from Kinaxis (Kinaxis Stock Quote, Chart, News TSX:KXS), according to analyst Nick Agostino of Laurentian Bank Securities.
On Friday, Agostino delivered an equity research update to clients wherein he previewed KXS’s third quarter, scheduled for November 1, and reaffirmed his “Buy” rating and C$100.00 target price for KXS.
Ahead of Q3 results from cloud-based supply chain management SaaS company Kinaxis, the consensus expectation is for sales of $44.8 million and adjusted EBITDA of $9.6 million, while Agostino is calling for $44.3 million and $10.6 million, respectively. (All figures in US dollars unless where noted otherwise.)
The analyst is modelling SaaS subscription sales growth of about 24 per cent, which is above the company’s 2019 guidance of 20 to 22 per cent, and is assuming steady results from the company’s subscription term license support segment. Agostino notes that while the first half of 2019 saw sales growth of 18 per cent, KXS has since then announced contract wins with a number of names such as Johnson Electric, Yamaha Motor, Teva Pharmaceuticals, Honda and BAT, which should benefit the company’s second half 2019 SaaS growth.
The analyst says that backlog is a focus for the quarter.
“Based on the attendees at KXS’ recent User Conference in Orlando and witnessed hiring activity, we believe KXS may have landed a few prominent wins during Q3 that have yet to be announced. As confirmation, we look for a meaningful increase in bookings, particularly in SaaS, continuing on the trend witnessed in Q2 as noted above. Similarly we look for notable strength in the SaaS backlog, which stands at US$229.3M as of Q2,” writes Agostino.
The analyst thinks that the third quarter results may see management revise parts of its guidance based on backlog growth and improved visibility going into the second half (as per its historical habit), where KXS has visibility into 90 per cent of its current 2019 sales guidance of $183 to $188 million. Agostino thinks that with another strong EBITDA results, the company’s EBITDA guidance could also head north.
Agostino estimates that KXS is currently trading at 7.4x his NTM EV/Sales, which is higher than its peer group of technology high-fliers (sales growth plus EBITDA margin above 50 per cent) at 6.6x, but KXS has historically traded at about a 2x premium to that group, says the analyst, due to its disruptive technology. Agostino says, “Continued contract announcements in the near-term could aid in restoring the full premium.”
Looking forward, the analyst thinks that KXS will generate fiscal 2019 sales and EBITDA of $185.4 million and $28.5 million, respectively, and fiscal 2020 sales and EBITDA of $210.1 million and $59.1 million, respectively. His C$100.00 target represents a projected return of 24.6 per cent at the time of publication.
Earlier this month, Kinaxis announced that its RapidResponse platform would be opened up to third parties for development of new applications and extensions, with the aim being to support the platform’s push into new markets and applications.
“This will provide the market with ultimate control and the potential to embed unique differentiation without suffering challenging upgrades over time,” said John Sicard, CEO, in a press release.