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Kinaxis is a great bet right now, this fund manager says

Kinaxis

Kinaxis Kinaxis (Kinaxis Stock Quote, Chart, News, Analysts, Financials TSX:KXS) has picked it up over the past few weeks, but after a disappointing quarterly report last month, the stock is now down a bunch for the year. It’s no time to panic, though, says portfolio manager Jamie Murray, who says the long-term horizon for this company is still solid.

Kinaxis, an Ottawa-headquartered supply chain management platform, saw its share price balloon with the onset of the pandemic last year, more than doubling over the first half of 2020 and hitting a high of C$223 by August.

But the stock has had a couple of significant pullbacks of late, both coming after the release of quarterly numbers. First in November, Kinaxis reported third quarter 2020 revenue up 17 per cent year-over-year, a strong result but not as sparkling as the growth registered in previous quarters when businesses had doubled down on their supply chain infrastructure during the topsy-turvy early days of COVID-19.

The company had guided with its Q3 commentary for full 2020 revenue to tick up to between $220 million and $223 million. That was a positive, but management also alluded to slower contract approval processes as companies strove now to defer new spending.

Tribe

The market dropped KXS by as much as 23 per cent over ensuing trading days in November, a scene that was then repeated in March with a 19-per-cent fall when the company’s fourth quarter results. There, KXS showed revenue actually down slightly, going from $56.3 million in the fourth quarter 2019 to $54.6 million in Q4 2020.

Adjusted EBITDA showed an even steeper drop-off, going from $18 million in 2019 Q4 to $6 million. Analysts, on the other hand, had expected total Q4 revenue of $54 million. (All figures in US dollars except where noted otherwise.)

By way of explanation, Kinaxis management appealed to a decline in term licensing revenues which over the fourth quarter went from $12 million in 2019 Q4 to $2 million, where the company derives its sales from SaaS revenue, Subscription Term License, Professional Services and Maintenance and Support.

“With the continued recovery of a more normal business environment, we expect our current momentum and positive outlook to drive a return to higher growth for 2022 and beyond,” said Kinaxis president and CEO Joe Sicard in a March 3 press release.

“Our year-end sales pipeline grew more than 40 per cent from 2019, as manufacturers continue to recognize the urgency in driving hyper-agility in their supply chain. We made some key strategic investments in 2020, both organically and by acquisitions, which will better enable us to execute on our growing pipeline, accelerate our product innovation, and exceed the needs of our growing customer base,” Sicard said.

But investors shouldn’t take the recent quarterly news as a sign of a company on the skids, says Murray, as revenue lumpiness is expected and Kinaxis’ prospects are still great.

“There was a bit of a pullback in some of the tech multiples in the last quarter and the stock had a pretty severe pullback,” said Murray, head of research at the Murray Wealth Group, speaking on BNN Bloomberg on Monday. “It is a name that we like and we hold in our Canadian-focused portfolios, one of our largest tech names.”

“It’s really just great software and they’re continuing to take market share from the incumbents in that supply chain management side. They’ve had a couple of instances like this in the past —there was another big mess I think in 2017 or 2018 where a big customer of theirs dropped them and we saw the stock off 25 to 30 per cent,” Murray said.

Kinaxis has made hay by evolving its RapidResponse platform beyond the tech and pharma sectors to gain traction in the CPG and automotive industries, picking up in recent years major client wins from Unilever and Procter & Gamble to Toyota, Honda and Ford.

“Concerns this time around were related to the sales cycle with, as you can imagine, so many other high-growth software names winning new business and accelerating their growth through the COVID pandemic, Kinaxis has a little bit of a different sales cycle,” Murray said.

“They have to deal with more with the top of the IT supply chains at all of these large companies where there were bigger decisions or longer-term decisions [being made], so these companies, I think, were distracted in dealing with other parts of their business and not really looking to implement a new supply inventory system,” Murray said.

“But ultimately we think you’ll see these concerns shake out over the next couple of years and Kinaxis will continue its growth and move to new highs,” Murray said.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.

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