Where is Kinaxis heading? Higher, says National Bank

National Bank Financial analyst Richard Tse is staying bullish on cloud-based supply chain management company Kinaxis (Kinaxis Stock Quote, Chart, News TSX:KXS) after a recent investor meet, saying in an update to clients Monday that Kinaxis will be one of the outsized beneficiaries on the other side of the current health crisis.

With the update, Tse maintained his “Outperform” rating for KXS but raised his target from C$200.00 to C$250.00, which at press time represented a projected 12-month return of 27 per cent.

“We had the opportunity to virtually meet investors with Kinaxis CEO John Sicard and CFO Richard Monkman — in summary, everything we heard reinforced our continued positive view on the name,” said Tse.

Kinaxis has been on a tremendous run through the first half of 2020, now sitting up 93 per cent for the year. That was after a 2019 where the stock appreciated 52 per cent.

Tse said the meeting allowed some perspective on Kinaxis’ latest acquisition, Rubikloud, an AI solutions business for the retail and CPG industries, announced on June 15 as an all-cash transaction for $60 million. Tse surmised that there were three drivers for the pickup: Rubikloud’s technology and product set in areas such as price optimization, promotion planning and assortment planning; the company’s ability to help open a new addressable market in enterprise retail; and the fact that the company adds a pool of development talent in AI and machine learning.

“From what we heard, the pending transaction should be additive with the underlying net benefit coming from operating leverage under Kinaxis’s scaling marketing and sales organization as the Company integrates the Rubikloud’s products into RapidResponse. In our opinion, Kinaxis had already been laying out a path towards incorporating demand-side planning with its own DemandSense offering – Rubikloud reinforces that opportunity. In the end, what was most interesting was that this acquisition developed
organically which underscores the potential opportunity,” Tse wrote.

The analyst said the investor meet also underlined his view that Kinaxis’s suppy chain planning capabilities are driving major Fortune 1000 companies “to make a material move to adopt Kinaxis over well-established companies like SAP and Oracle,” he added.

“Kinaxis has taken advantage with its recently released RapidValue, a quick deploy triage offering that helps enterprises alleviate their most pressing supply chain planning issues in four to six weeks. In our view, with growing interest in RapidValue, we believe it could have the potential to drive demand for its full-scale RapidResponse offering,” Tse said.

On the longer-term impact of COVID-19, Tse said the crisis has brought to the fore the need for companies to have resilient supply chains, which has translated into more interest in Kinaxis’s offerings.

On that note, Tse wrote, “For a Company that’s generally been quite judicious on how it spends from an operating cost perspective, a targeted 40 per cent increase in headcount in 2020 suggests they see quite a bit of incremental opportunity.”

For 2020, Tse thinks Kinaxis will generate revenue and EBITDA of $215.1 million and $50.2 million, respectively, and for 2021, he is calling for revenue and EBITDA of $273.3 million and $69.9 million, respectively. (All figures in US dollars unless where noted otherwise.)