Tech companies are due to report second quarter earnings over the next few weeks, and National Bank Financial analysts Richard Tse and John Shao have provided previews for the technology stocks in their coverage universe in a recent report.
Cantech Letter has already profiled half of those picks, so here’s the second half, including ten with Buy-equivalent ratings and three with Neutral-equivalent ratings. Note that all figures are in Canadian dollars except where otherwise indicated and all projected 12-month returns are listed as per publication date of the National Bank report on July 20.
Lightspeed Commerce (Lightspeed Commerce Stock Quote, Charts, News, Analysts, Financials NASDAQ:LSPD)
Target Price: US$65.00
Projected Return: 209 per cent
Lightspeed had a pretty poor showing over the past 12 months as a stock but better times are ahead, according to Tse, who is expecting strong first quarter fiscal 2023 results coming up, care of continued reopenings of stores along with a rejuvenated tourism and hospitality sector. Lightspeed has been a busy acquirer over the past few years, and Tse sees these acquisitions as material to fortify the company’s foundation for growth.
Tse also sees upside to LSPD’s Payments offering.
“Given a low payment attach rate of ~12 per cent at the end of CQ1 (FQ4), 13 per cent in March, relative to the 50 per cent target, we see an opportunity to sell into a scaling base (GTV of $18.4 billion, +71 per cent Y/Y in CQ1 – 39 per cent organic) to accelerate organic growth. We’d also note the Company began rolling out its payments offering to new hospitality merchants in Australia and U.S. merchants from the acquisition of Vend – we estimate expanding payments to Vend merchants could increase the annual addressable payments GTV by ~$7 billion,” he wrote.
Magnet Forensics (Magnet Forensics Stock Quote, Charts, News, Analysts, Financials TSX:MAGT)
Target Price: $50.00
Projected Return: 155 per cent
In-line results are expected by Shao from digital investigation software company Magnet Forensics’ upcoming quarterly financials, which would make for an attractive 30 per cent organic growth rate and a 14 per cent EBITDA margin.
“We believe Magnet Forensics is an early leader in this market with a suite of competitive offerings to target both the public and enterprise clients. The quality of its business model is underscored by its financial performance with strong growth and profitability,” Shao wrote.
Rating: Sector Perform
Target Price: $2.00 (previously $3.00)
Projected Return: 18 per cent
Inflationary pressures are likely to impact mdf’s upcoming fiscal first quarter results, Tse said, particularly related to professional fees to support customer implementations, and with a lack of near-term catalysts for mdf from a macro view the focus from an investor point of view will likely point to Periscope, mdf’s big acquisition that has the potential to re-rate the stock upwards, Tse said.
“While we like the plan laid out by Management, whether the Company can successfully execute its plan while concurrently expanding its margin profile on a consistent basis will require some meaningful execution. On that, we think the multiple operating businesses dilutes potential valuation upside,” Tse said.
Target Price: US$100.00 (previously US$130.00)
Projected Return: 175 per cent
Payments company Nuvei had a rough ride over the past year but Tse likes the company’s track record of either meeting or exceeding expectations quarterly since going public in September 2020. The analyst is expecting continued volume growth in the second quarter of 36 per cent year-over-year fuelled by organic and inorganic growth.
“We continue to believe Nuvei is at the forefront of a payments market that continues to undergo a meaningful transformation. Within that market, Nuvei remains a disruptive player with outsized growth relative to the sector,” Tse said.
Target Price: US$60.00
Projected Return: 50 per cent
With the recent pullback in Tech valuations, Tse sees OpenText being more active on the M&A front, with about $2.4 billion in available liquidity and a net debt to EBITDA ratio of 1.9x (and management saying it has a healthy pipeline of over 1,200 potential companies with acquirable revenue of over $20 billion).
Tse said he continues to like OTEX for its defensive attributes including free cash flow, while adding that organic growth has the potential to drive an upward re-rating of the stock.
“If you’ve been following our research, you’ll recall that OpenText’s shift to Cloud has opened up an opportunity to expand into SMB, adding potential upside to organic growth. And while Cloud alone would help in that effort, we believe the acquisitions of Zix and Carbonite has helped scale OpenText’s SMB channel. Per OpenText, SMBs are adding $35.7 billion in addressable market potential to an already large TAM of ~$92 billion,” Tse wrote.
Target Price: $8.00
Projected Return: 129 per cent
Commerce services company Pivotree should deliver in-line to slightly better-than-expected second quarter results, according to Shao, who says the company’s business fundamentals have been steadily improving. The business is on track to meet or exceed Shao projected eight to ten per cent organic growth rate for the year, Shao said, which would be higher than its peer group. Pivotree is also heading for positive EBITDA for the 2022 year, the analyst added, and, over the past year, Shao sees the company as having acquired a suite of IP that could be quickly deployed to address customers’ pain points while generating long-term revenue.
“Our investment thesis remains unchanged. We believe Pivotree is a leading provider of e-commerce and MDM services in a market that’s still in an early stage of scaling for large enterprises,” Shao wrote.
Target Price: $8.00 (previously $10.00)
Projected Return: 78 per cent
Tse says investment software company Q4 has been able to leverage its platform to scale that’s helped by its strategic partners to capture an industry-leading market share. The upcoming quarter should arrive in-line with expectations, Tse said, while the company should experience some notable cross- and up-selling of additional solutions to existing customers.
“We think the potential surprise coming from Q4 going forward will be its ability to expand gross margins. Since going public, the Company has proven capable of this aspiration given that those margins ticked up by 300 bps Y/Y in its most recent quarter (FQ1’2022),” Tse wrote.
“As a recap, we see that coming from a fixed cost structure for data and cost savings from the use of its own proprietary (virtual events) platform rather than technology partners. Our view is that this margin expansion will continue as the Company gains operating leverage with more customers beginning to use Q4’s CRM and analytics solutions – higher margin,” he said.
Rating: Sector Perform
Target Price: $6.00
Projected Return: 22 per cent
Software company for the mortgage lending and insurance sectors, Real Matters is likely to face headwinds related to the rising interest rate environment, Tse said, as REAL’s business is correlated with mortgage and refinance volumes which have dropped significantly in recent months.
At the same time, Tse believes REAL’s Title and Closing segment should be the next leg of growth for the company when it comes to re-rating the stock.
“While we continue to see long-term potential in REAL (particularly in the T&C segment) given its unique platform that supports some of the most prominent lenders in North America, we believe that will likely mark time given a stark (challenging) outlook for both origination and re-fi volumes. For now, we’re maintaining our Sector Perform rating,” Tse wrote.
Target Price: US$75.00
Projected Return: 95 per cent
Weakening growth in the e-commerce space has Tse feeling less confident about the near term prospects for Shopify, which will also be seeing a negative short-term impact on margins as the company remains in the midst of an investment cycle related to its fulfillment network.
Tse noted that SHOP’s international push has made strides recently with the launch of Shopify Markets, the company’s growing partnership with Global-e and new partnerships with JD.com to expand its presence in China and Shippo for European markets.
“We continue to believe Shopify is in the early stages of a market that’s structurally changing – shifting increasingly towards eCommerce. We believe Shopify remains a leading eCommerce disruptor and believe upside in the stock will come from a number of different incremental growth drivers noted above,” Tse said.
Softchoice Corp (Softchoice Stock Quote, Charts, News, Analysts, Financials TSX:SFTC)
Rating: Sector Perform
Target Price: $25.00
Projected Return: 6 per cent
In-line results are expected from Softchoice, according to Shao, who said first half of the year seasonality will be an issue. At the same time, Softchoice should see a quick rebound in the H2 2022, due also in part to the company’s well-timed share buyback program and dividend currently paying $0.09 per share.
“We’d view FQ2 a critical quarter from a guidance perspective given the FQ1 miss essentially created performance pressure in the subsequent quarters when the full-year guidance was maintained. Regardless of the results, the presence of an active NCIB would provide support for the stock price in the near term.
Target Price: $50.00
Projected Return: 41 per cent
Supply chain management software company Tecsys reported its fiscal fourth quarter in June, so it won’t be releasing its fiscal Q1 until September, but Shao is expecting strong year-over-year growth from the company’s SaaS segment whereas its Professional Services business should remain flat or slightly up. Shao said its an overall positive outlook on Tecsys’ SaaS transition is why he’s staying optimistic on the stock.
“Time has allowed Tecsys to scale and expand its platform into a growing logistics powerhouse within the healthcare vertical. That fortification along with growth initiatives that include strategic and operational investments and acquisitions is putting Tecsys in a position to scale into broader markets. We believe Tecsys is on the cusp of scaling into a bigger company,” Shao wrote.
TELUS International (TELUS International Stock Quote, Charts, News, Analysts, Financials TSX:TIXT)
Target Price: US$50.00
Projected Return: 79 per cent
Tse is expecting negative year-over-year growth of 17 per cent for TELUS International’s upcoming quarterly results, although he said the company has the ability to accelerate its growth through additional acquisitions given its comfortable leverage ratio.
Tse sees tailwinds for TIXT as social content in general becomes more regulated, making services such as content moderation more important, while the company’s digital customer experience business is also in the right place at the right time.
“TELUS International is a Company that’s been able to leverage its roots in Customer Experience. Time has allowed the Company to hone and fortify its offering which has already shown in its execution with expectations of outsized growth versus the sector,” Tse wrote.
Target Price: $5.00 (previously $6.00)
Projected Return: 176 per cent
Online learning platform Thinkific Labs should have an in-line Q2, according to Tse, who added that increased pricing and the resultant higher churn along with signs of lower discretionary spend may together bring adjusted EBITDA to the lower end of management’s guidance.
Tse has lowered his target on expectations of lower demand for Thinkific’s services over the short term with global reopenings and lower discretionary spend.
“We continue to see Thinkific as an early leader in the online learning market with a competitive platform for content creators. With incremental growth drivers such as Thinkific Payments and the Thinkific App Store, we still see a meaningful runway of growth, particularly from ARPU expansion for existing customers,” Tse wrote.