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Descartes Systems wins another price target raise at Laurentian

Descartes

Descartes For the second time in a month, Laurentian Bank Securities analyst Nick Agostino has adjusted his target price for Canadian SaaS logistics company Descartes Systems Group (Descartes Systems Group Stock Quote, Chart, News, Analysts, Financials TSX:DSG), raising his target to $79.00 US per share ($98.65 CDN) while reaffirming Laurentian’s “Buy” rating on the stock.

The latest adjustment comes after Descartes purchased GreenMile, an Orlando-based provider of cloud-based mobile route execution solutions for food, beverage, and broader distribution verticals, in a deal that could reach $40M, with $30M upfront and up to $10M based on revenues over the first two years post-acquisition.

Waterloo-based Descartes is a global provider of on demand software-as-a-service solutions for logistics-intensive businesses, where its offerings help businesses to optimize and automate processes such as planning, routing, scheduling and tracking of deliveries, order tracking, invoicing, auditing, payment and filing of customs and security documents for cross-border trade.

GreenMile is just the latest in a series of acquisitions for Descartes in 2021, beginning in February with QuestaWeb, a foreign trade zone and customs compliance business, for $35.9 million and then in May with Portrix Logistics Software GmbH for $25.1 million.

In acquiring GreenMile, whose software solutions are deployed by companies like Coca-Cola, PepsiCo, Praxair, and Heineken, among others, Descartes can stand to benefit from the executive group’s 70-plus years of experience with transportation and logistics software while also providing an in for the Latin American market, Agostino said.

“GreenMile’s 8 robust SaaS-based, ML-enabled modules allow for route dispatching, actual-versus-planned management, real-time route optimization, advanced reporting and analytics, and a wide range of mobility applications,” he said. “GreenMile’s global reach is complemented by a network of VAR’s including Star-Fleet Solutions and Sifranext, as well as offices in Sao Paulo and Fortaleza, Brazil.”

In announcing the acquisition on July 8, Descartes noted GreenMile’s innovative, scalable mobile route solutions would help increase efficiencies and improve customer satisfaction.

“GreenMile has built a great business by focusing on the unique challenges faced by retail food and beverage distribution companies,” said Andrew Roszko, EVP Commercial Operations at Descartes, in a press release.

“Their mobile applications are used by drivers around the world to improve their productivity and provide real-time delivery visibility to enhance customer service. The platform is complemented with advanced analytics and delivery performance management tools to provide managers in the field and corporate leadership with a comprehensive view of field operations. When combined with Descartes’ advanced route optimization tools, we believe it presents a compelling proposition to help distributors improve their final-mile delivery operations,” Roszko said.

Descartes’ management says it is excited about the prospect of bringing GreenMile into the fold.

“We continue to invest in a broader set of capabilities to help our customers across diverse industry verticals solve their final-mile challenges,” said Edward J Ryan, Descartes’ CEO. “The GreenMile combination helps us by adding a team with deep domain expertise in retail food and beverage distribution, extending our operational footprint and presence in Latin America, and adding to our community of truly global distribution companies.”

With the GreenMile acquisition now complete, Agostino and Laurentian Bank Securities have revisited Descartes’ merger and acquisition estimates, with the expectation of the deal leading to a typical tuck-in, with a revenue multiple around 4-5x.

“We add US$7M annually associated with this deal starting FQ3,” Agostino said. “We also increase our F2023 growth outlook to reflect increasing deal activity and now model YoY growth of 14.6% vs. 12.9% previously, approaching DSG’s pre-COVID growth rates of ~16%. We leave our margin profile unchanged.”
Both sales and EBITDA figures have consistently been going up for Descartes since the first quarter of 2020. Sales have increased 26.7 percent in that time, going from $78M tin Q120 to $98.8M in Q122, while EBITDA has increased from $28.6M in Q120 to $41.1M in Q122, a 43.7 percent jump.

Laurentian forecasts have Descartes crossing the $100M threshold in quarterly sales in Q2 2022 en route to a $410.8M projection at 2022 year-end, with an EV/Sales ratio of 13.8x, while EBITDA is projected to hit $172.8M at 2022 year-end, with the EV/EBITDA forecast to land around 32.9x.

“Our increased TP reflects: 1) a 6-month shift in our valuation period to mid-F23/24 as we approach mid-F2022; 2) higher EBITDA estimates; and, 3) a 10bps reduction in our DCF discount rate attributable to a lower risk free rate. DSG currently trades at 32.2x NTM EBITDA vs. supply chain/logistics peers at 36.1x and software consolidators at 16.7x,” Agostino wrote.

Agostino’s new price target on Descartes implied a return of 15 per cent at the time of publication.

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About The Author /

Geordie Carragher is a staff writer for Cantech Letter

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