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Kinaxis has a 22 per cent upside, says Laurentian Bank

KXS stock

Nick Agostino of Laurentian Bank Securities is sticking with Canadian supply chain management software provider Kinaxis (Kinaxis Stock Quote, Chart, News, Analysts, Financials TSX:KXS), maintaining his “Buy” rating and target price of $200/share on the company in his latest analysis on Thursday. Agostino’s target represented at press time a projected one-year return of 21.6 per cent.

Headquartered in Ottawa with satellite/virtual offices in Chicago, Tokyo, Hong Kong and Eindhoven, the Netherlands, Kinaxis has been around since 1984 and is a supplier of cloud-based subscription software, RapidResponse, which provides end-to end visibility, planning and co-ordination of supply chain networks.

Agostino believes the company is in the midst of a rebound after falling off slightly in June..

“Despite a strong Q1, KXS’ stock slid by about ten per cent since results were reported on May 5, we believe owing to concerns on growth opportunities as the company doubles down on mid-market clients as opposed to enterprise,” Agostino wrote.

Kinaxis has been involved in a legal battle with Arizona-based Blue Yonder since December, with Blue Yonder alleging that Kinaxis had used some of its patented inventions in its software. Kinaxis later filed a counterclaim saying the company has “violated federal and Texas law by misappropriating certain of Kinaxis’ trade secrets and has filed a motion asking the court to force Blue Yonder to return or destroy confidential Kinaxis documents, and to stop using those documents in its case or in competition.”

The matter remains within the legal system as the district court of the Northern District of Texas deferred ruling on the merits of Kinaxis’ motion to dismiss Blue Yonder’s lawsuit in May, though the court did grant Kinaxis’ motion to strike certain expert testimony that Blue Yonder had submitted in relation to Kinaxis’ motion.

However, in spite of the legal dispute, Kinaxis stock has rebounded since June thanks to a $384 million backlog from Q1, with SaaS accounting for $360.8 million of that number.

The company’s RapidResponse supply chain platform has been in demand of late, as the company recently struck agreements with Viant, a Massachusetts-based global medical device design and manufacturing services provider, California-based AI company LevaData, and Japanese company Advantest to help manage the growing demand for semiconductors. Meanwhile, the first phase of RapidResponse deployment has been completed with infinera, a California-based global networking solutions provider.

“The semiconductor market is under pressure with the growth of electric vehicles, an increase in telecommuting and higher investment levels in 5G communications and other aspects of the IoT infrastructure environment,” said John Sicard, CEO of Kinaxis in the company’s July 27 press release announcing the Advantest agreement.

“I am extremely pleased that we are able to support the mission of Advantest, a company that aims to solve the global-level issue of semiconductor manufacturing and supply through measurement technology. With concurrent planning and RapidResponse’s ability to manage market uncertainty, we will provide Advantest with the supply chain resilience and enhanced agility needed to respond to change in time to make a difference,” Sicard said.

Kinaxis has also brought aboard seven new System Integrator partners, with their respective businesses ranging from large, international firms to regionally focused consultancies with an emphasis on strong supply chain management. Three American firms are included in this group, as are firms based in India, Singapore, South Korea and throughout the APAC region.

Meanwhile, Kinaxis also welcomed IT solution providers Boston Strategies International and Bolders Consulting Group to the fold as Referral partners, with the mandate of identifying additional fits for the RapidResponse infrastructure.

Kinaxis still appears to be on a healthy growth trajectory from a revenue perspective, with 2020’s total of $224.2 million representing a 17.1 per cent year-over-year increase on 2019 revenues of $191.5 million. Agostino predicts this trend will continue, projecting 2021 revenue to come in at $246.3 million before jumping to $319.2 million in 2022.

Agostino sees the company’s EBITDA hitting peaks and valleys after dropping from $53.6 million in 2020 to a projected $33.7 million in 2021. However, the analyst estimates EBITDA will almost double in 2022, forecasting a figure of $67 million.

In terms of valuation ratios, the EV/Sales multiple is set to drop in a somewhat linear fashion, with Agostino projecting a reduction from 14.9x in 2020 to 13.6x for 2021, then dropping again to 10.5x in 2022. Meanwhile, similar to the EBITDA, Agostino sees the company’s EV/EBITDA multiple fluctuating considerably within the next year or two, forecasting a jump to 99.3x in 2021 from 62.5x in 2020, then dropping to 50x in 2022.

With second quarter results coming in a conference call with investors on August 6, Agostino believes Kinaxis is headed in the right direction once again.

“The story continues to regain momentum following the pandemic as KXS logged strong bookings (SaaS book-to-bill of 1.2x) in Q1 augmented by encouraging commentary by management around TAM expansion, mid-market penetration and early sales cycle acceleration, and we look for similar strength in 2H/21,” he said.

KXS’s share price more than doubled over the first half of 2020, hitting a high of $223 in June of last year. The stock fell gradually over the next 12 months and has recently been trading in the $160 range.

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Geordie Carragher is a staff writer for Cantech Letter
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