Some Canadian tech stocks set to benefit from supply chain evolutions include Shopify (Shopify Stock Quote, Chart, News TSX:SHOP), Kinaxis (Kinaxis Stock Quote, Chart, News TSX:KXS) and Descartes Systems (Descartes Systems Stock Quote, Chart, News TSX:DSG). That’s the take from National Bank analyst Richard Tse, who on Wednesday delivered a report to clients on structural changes in a post-COVID world.
Part of a series looking beyond the current pandemic, Tse pointed to a few secular themes related to supply chains that started well before COVID hit and have been accelerating since. Tse argued that global supply chains had already been upgrading before COVID but that a few key tech fields will see continued growth due to the changes, specifically, robotics, fulfillment and third party logistics, industrial IoT, supply chain management software and logistics platforms.
On the topic of fulfillment networks, Tse said small merchants are at a definite disadvantage, as free and same-day shipping have become priorities for customers, while only the largest (Amazon, Shopify and Rakuten) have North American in-house fulfillment networks of any depth.
Supply chain management software is another big factor, according to Tse, who pointed to a recent survey by research firm IDC found that 65 per cent of companies view their supply chain as a competitive differentiation, while many have yet to upgrade.
“Respondents identified data availability and supply chain visibility as the most significant impediments to better supply chain planning,” Tse wrote. “Here’s the kicker, more than 50 per cent of the 1,839 companies surveyed still use spreadsheets!!! No doubt, we’ve already heard from our industry sources that enterprises are looking to change that. And it’s supported by the data as 40 per cent of respondents in the IDC survey said they are looking to update IT-related supply chain infrastructures. Notable public companies here are Anaplan, Kinaxis, and SAP.”
On the logistics side, Tse drew a similar conclusion, saying diversified supply chains require sophisticated platforms to remotely manage logistics functions such as those provided by Descartes, whose CEO Edward Ryan has called recent changes to logistics a tailwind for their business.
As well, Tse argued that the repatriation movement in manufacturing will necessitate upgrades to shrink labour costs, which specifically involves the deploy of more robotics, while optimizing supply chains will also require more deploy of industrial Internet of Things to track and monitor inventory. Tse said notable companies in the IoT space include Analog Devices, BlackBerry, Blackline Safety, Cisco, Sierra Wireless and Telit.
“Perhaps obvious but it’s important to state nonetheless –the driver of disruption was a rapidly changing demand environment and the ability of enterprises to respond, reallocate and scale production. In our view, even if enterprises had full visibility into what was about to happen, their ability to respond would have still been limited,” Tse said.
“Yet, the key word there is ‘limited.’ The reality is that those enterprises with more progressive supply chains were able to adapt despite limitations, while those without were paralyzed. All that’s to say is the supply chain has become more prominent across enterprises,” he said.
On Shopify, Tse has an “Outperform” rating and US$850.00 per share target price. On Kinaxis, Tse is also rating it “Outperform” with a C$200.00 target. Tse and National Bank currently aren’t covering Descartes Systems.