National Bank Financial analyst Tse reveals top “high flyer” picks

No alarms and no surprises, to quote Radiohead.

That’s what National Bank Financial analyst Richard Tse is expecting from his coverage universe in the calendar Q3 earnings season.

But that doesn’t mean he thinks the stocks he covers are unattractive right now. Indeed the analyst has three stocks he regards as “High Flyers”, namely, Kinaxis (Kinaxis Stock Quote, Chart, News TSX:KXS), Lightspeed POS (Lightspeed POS Stock Quote, Chart, News TSX:LSPD), and Shopify (Shopify Stock Quote, Chart, News TSX:SHOP).

“Of our growth names, Kinaxis offers the most attractive relative value today,” Tse says. “We acknowledge the name has drawn some investor frustration over the past year care of IFRS changes and some operational / investment re-tooling. And while those investments over the past year are still not fully at scale, we believe momentum is building from those investments. In our view, that was underscored by what we heard at the Company’s recent annual user conference.

The National Bank Financial analyst has an “Outperform” rating and a one-year price target of $100.00 on Kinaxis, a price that represented a return of 22 per cent at the time of publication.

The analyst says he expects KXS’s upcoming quarter will be in-line with expectations and that conversion of its expanded pipeline won’t really start to take hold in the fourth quarter and into 2020.

An in-line quarter is also what Tse expects from Lightspeed POS, which has had a pullback of late.

“Despite the pullback from its peak, the investment thesis has not changed from our initiation. By our estimate, ARPU increased more than 18% while the Payment attach rate on eligible merchants increased to 50% from 40% with GTV of $4.6 bln (+46% Y/Y). To us, that’s a good start. We reiterate our Outperform rating and target price of C$52, our target implies EV/Sales of 11.8x on F22E (CY21).

Tse’s $52.00 target represented a return of 65 per cent at the time of publication.

“The key metric for us will continue to be the uptake in Payments as we believe that’s the major valuation driver looking ahead,” he adds.

“Launched on January 30th, Lightspeed Payment already has a 50% attach rate among new merchants versus a former attach rate of 35% with Payment partners,” says Tse. “We expect both the attach rate and the number of users to accelerate as Lightspeed invests further into sales and marketing with a roll out of Payments into US Restaurants and other expanded geographic regions. If that weren’t enough, we believe the Company is also looking to expand its payment partner network globally and potentially add new functionality such as accelerated payments, modernized hardware and financial services – all incremental to our current growth estimates.”

Finally, Tse says high flyer Shopify, regarded as expensive by many, still has a lot of runway.

“In our opinion, Shopify remains the global leader in its “core” market segment,” the analyst said. “You might be surprised but we see potential optionality from new growth initiatives. While valuation may be robust, like other disruptive leaders, we believe there’s upside from multiple drivers from International, Plus, to an increasing array of merchant services (Fulfillment). We maintain our Outperform rating with a price target of US$400 which implies EV/Sales of 16.1x on F21E.

“Beyond Fulfillment, POS enhancements and upgrades to Shopify Plus as well as improvements to better support developers and International markets continue to drive near-term results,” the analyst writes. “We believe all those initiatives have the potential to drive accelerated (if not just sustained) growth by increasing GMV and take rate while fortifying a stickier merchant base. We like the name ahead of what we expect will be
a record holiday season for SHOP.

International has only begun to scale,” he adds. “With support for seven language translations already, Shopify is adding support for 11 more languages – essentially opening up another 2 billion people to access the platform. If that wasn’t enough, Shopify is also making available Multicurrency function within Payment to all merchants regardless of size.”

The National Bank Financial analyst’s price target on Shopify represented a return of 13 per cent at the time of publication.