SaaS logistics and supply chain management company Descartes Systems Group (Descartes Systems Group Stock Quote, Chart, News TSX:DSG) received a rating upgrade from analyst Daniel Rosenberg of Haywood Capital Markets on Thursday as the analyst reviewed Descartes’ latest quarterly results.
Rosenberg says that with highly recurring revenue, high EBITDA margins and a track record of disciplined M&A, Descartes is looking attractive.
Waterloo, Ontario-based Descartes reported its fiscal fourth quarter 2020 and full-year results on Wednesday, showing revenues up 18 per cent for the year to $325.8 million, split into services revenues up 18 per cent to $284.7 million, professional services and other revenues of $33.6 million and license revenues of $7.5 million.
Adjusted EBITDA for the year was up 31 per cent to $122.6 million. (All figures in US dollars.)
CEO Ed Ryan said in the quarterly press release that global supply chains are under pressure and companies are looking to be flexible in reacting to changing market conditions.
“The Descartes Global Logistics Network (GLN) is designed to help customers overcome these challenges. Our connected community of shippers, carriers, customs authorities and logistics service providers allows trading partners to seamlessly exchange timely, reliable data, while our advanced logistics applications help our customers use this data to better plan and execute shipments in a dynamic, real-time environment,” said Ryan.
In his report, Rosenberg said the Q4 results were in line with expectations. DSG’s Q4 revenue of $84.2 million was up 19 per cent year-over-year and compared to the analyst’s estimate of $84.4 million and the consensus $84.3 million. Q4 adjusted EBITDA of $32.2 million was up 29 per cent year-over-year and compared to Rosenberg’s $32.1 million estimate and the Street’s $31.9 million.
Rosenberg noted that Descartes ended the quarter with cash of $44.4 million and no debt, and the analyst expects more M&A activity ahead for Descartes, which after the quarter’s end announced the acquisition of UK-based warehouse management company Peoplevox for $24.5 million.
The Haywood analyst said Descartes’ management addressed in the conference call the potential impact of the coronavirus worldwide outbreak on the logistics and supply chain industry.
“While management acknowledged unknowns around the risks related to the coronavirus, to date impact has been minimal. Chinese supply chain activity has since rebounded from the slow down during Chinese New Year. Management underscored the value of their platform in helping customers navigate changing supply chains,” Rosenberg said.
Rosenberg revised his forecast for DSG, calling for fiscal 2021 revenue and EBITDA of $361.7 million and $140.5 million, respectively, and for fiscal 2022 revenue and EBITDA of $396.3 million and $159.0 million, respectively.
While he has maintained his target price of $46.50, Rosenberg upgraded DSG from “Hold” to “Buy” based on share price weakness. At press time, Rosenberg’s target represented a projected one-year return of 14 per cent.
“Descartes is an integrator of logistic solution providers and has built an attractive mix of cloud-based software and data content. The Company has consistently demonstrated an ability to acquire, integrate, and extract synergies through M&A. We believe investors will continue to be rewarded in the long-term as Descartes consolidates the sector,” Rosenberg wrote.