Kinaxis is a Buy, says Laurentian Bank

Look for supply chain SaaS company Kinaxis (Kinaxis Stock Quote, Chart, News TSX:KXS) to come out swinging with tomorrow’s fourth quarter results, says Nick Agostino, analyst for Laurentian Bank Securities, who on Friday delivered to clients an update and Q4 preview on the stock.

Ottawa-based Kinaxis, whose cloud-based subscription software RapidResponse gives end-to-end visibility, planning and coordination of supply chain networks, will deliver its fourth quarter 2019 financials after market close on February 25, with Agostino calling for SaaS subscription sales growth of 23 per cent leading to SaaS sales of $31.2 million. (All figures in US dollars unless where noted otherwise.)

The analyst thinks KXS will generate total sales of $54.6 million, which would be in line with consensus expectations and representing a 42.5-per-cent improvement on last year’s Q4. Agostino is calling for adjusted EBITDA of $15.5 million, which is above the consensus of $14.7 million and would represent a full 82.0-per-cent improvement over Q4 2018. Subscription Term Licenses, a segment with very high margins, are expected to drive the earnings growth, the analyst said.

Kinaxis’ backlog remains a focus for Agostino, as it should give an indication on the company’s expansion efforts.

“KXS has posted two straight quarters of strong backlog growth, particularly in SaaS, and formally announced some contracts during Q3/Q4 to support that growth. More recently, KXS has made contract and partnership (to further penetrate Europe/Asia) announcements, which suggest continued signing momentum through Q4. We look to the backlog/bookings for confirmation,” said Agostino in his update to clients.

With respect to management’s guidance for the upcoming year, Agostino is calling for sales of $212.4 million on SaaS growth of 24 per cent and EBITDA of $56.3 million.

With the update, Agostino has reiterated his “Buy” rating and C$110.00 per share target, which at press time represented a projected 12-month return of 1.1 per cent. The analyst wrote that a revision of his target price could be upcoming.

“KXS currently trades at 9.5x our NTM EV/Sales (recent peak 10.2x) versus technology high-fliers (sales growth + EBITDA margin >50 per cent) at 7.0x. Historically KXS has traded at a 2x premium to this group reflecting its disruptive technology. As our RoR is offside, we look to revisit our recommendation/TP post Q4,” Agostino wrote.

Kinaxis last week announced that Danish pharmaceutical company H. Lundbeck A/S had chosen its RapidResponse platform for its supply chain management.

“We are excited to have earned the trust of Lundbeck to help them manage their supply chain planning. Working together, we will help Lundbeck better monitor, plan and respond to changes across their supply chain, giving them the agility and speed needed to adapt and make changes in time to make a difference,” Kinaxis CEO John Sicard said in a press release on February 19.

Kinaxis had a superb year in 2019, finishing up 52 per cent. So far in 2020, the stock is up seven per cent.