Kinaxis wins a target raise from Laurentian Bank

Laurentian Bank Securities analyst Nick Agostino sees positive movement in Kinaxis (Kinaxis Stock Quote, Charts, News, Analysts, Financials TSX:KXS), maintaining a “Buy” rating and raising his target price in an update to clients on Friday.

Originally incorporated in 1984 as webPLAN Inc. and headquartered in Ottawa, Kinaxis provides cloud-based subscription software for supply chain operations via its RapidResponse platform, which helps planners, business leaders and IT professionals in a range of actions on waste, demand planning, supply planning, inventory management and sales and operations planning.

Agostino’s latest analysis comes after Kinaxis reported its third quarter financial results which he noted to be above expectations.

The company’s quarterly financials were headlined by $64.4 million in revenue (all report figures in US dollars except where noted otherwise), to not only beat Agostino’s initial $64.1 million estimate and the consensus projection of $63 million, but also produced a 7.3 per cent sequential growth and 16.9 per cent year-over-year improvement. 

Meanwhile, the company reported EBITDA of $12.4 million for a 19.2 per cent margin, with the total figure being 67.9 per cent higher than Agostino’s projection of $7.4 million. The figure also comes in well ahead of the consensus projection of $7.9 million while also producing sequential growth of 73.2 per cent and a year-over-year jump of 22.2 per cent.

Agostino attributed the strong EBITDA quarter to the company’s sales beat and composition, including a higher Subscription Term License number, as well as lower than anticipated expense figures, and tailwinds from the Canadian dollar’s depreciation.

“We won a record number of new customers this quarter, and year-to-date we have more than tripled new customer wins compared to the same time last year. That success is reflected in very strong year-over-year growth in our annual recurring revenue and a slightly improved outlook for 2021,” said John Sicard, President and CEO of Kinaxis in the company’s November 4 press release. “Supply chain issues continue to be at the centre of boardroom conversations and daily news feeds, and we are helping companies navigate the complexities. The sustained, positive momentum in our market gives us confidence in our mid-term target of 23 to 25 per cent growth in SaaS revenue, including for next year.”

The news has prompted revisions to Agostino’s financial projections for Kinaxis, as he now forecasts improvements to both the company’s revenue ($68.2 million vs. $65 million) and EBITDA ($11.7 million vs. $7.6 million) for the fourth quarter of 2021, leading to revisions for the full 2021 fiscal year in both categories as well, as he now projects $250.4 million in revenue (previously $246.9 million) and $40.3 million in EBITDA (previously $31.1 million) for a margin of 16.1 per cent compared to the initial 12.6 per cent outlook.

Looking ahead to 2022, Agostino has bumped up revenue to a projected $325.4 million (previously $320 million), while he now projects the EBITDA to be $71.6 million for a margin of 22 per cent instead of the original $59.5 million estimate with a margin of 18.6 per cent.

Between now and 2022, Agostino sees the company’s revenue mix starting to even out a bit, as he projects 72.7 per cent of the company’s fourth quarter revenue to come from subscription services and SaaS compared to a 67.8 per cent projection for 2022, with projected growth in subscription term licenses and professional services accounting for the difference.

Agostino also projects changes to the adjusted EPS for both 2021 ($0.62/share from his previous $0.35/share estimate), and 2022 ($1.37/share instead of the initial $1.05/share estimate.)

From a valuation standpoint, Agostino projects the company’s downward EV/Sales multiple trend to continue, projecting 2021’s multiple to come in at 16.3x compared to the reported 18.2x in 2020, then dropping to a projected 12.5x in 2022.

On EV/EBITDA, Agostino projects an increase to 101x in 2021 from the reported 76x in 2020, though he expects that to nearly be halved to 56.9x in 2022.

“We welcome the overall strong results, and despite the SaaS growth miss in Q3, the adjustment commentary noted above alongside predicted renewal cycle acceleration, ARR growth and pipeline visibility provide us comfort that KXS is on track to deliver SaaS growth of 23 to 25 per cent in 2022, which we believe is the key KPI that should drive investor comfort,” Agostino said.

Kinaxis’ stock price has experienced positive momentum over the last six months with 45.1 per cent growth in that time, contributing to the 12.4 per cent overall growth rate for the year to date as it climbs closer to its high point of C$205.63/share on September 1. With the update, Agostino has raised his target price from C$210.00 to C$225.00 per share which at press time translated into a projected one-year return of 14.8 per cent.