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mdf commerce is undervalued, says Laurentian

The stock may be way down over the past year and a half, but investors will want to look at mdf commerce (mdf commerce Stock Quote, Charts, News, Analysts, Financials TSX:MDF), according to Laurentian Bank Securities analyst Nick Agostino, who just raised his target price on the stock.

Montreal-based mdf commerce has offerings in e-business networks and e-commerce solutions, with branded platforms offering procurement and publishing solutions and online marketplaces. mdf announced on Wednesday that it has entered into a share purchase agreement with SPS Commerce Inc for the sale of its Unified Commerce platform subsidiary InterTrade Systems. 

The deal comes with a total all-cash consideration of $65.8 million. mdf said the proceeds from the sale will go towards repaying the outstanding term facility of $21.7 million in full at the deal’s closing, with the remaining balance going towards repaying mdf’s revolving facility.

“As a world-leading retail network connecting trading partners around the globe, SPS commerce represents a perfect fit to bring this business to the next level and to provide even more value to customers,” said Luc Filiatreault, mdf CEO in a press release.

“This sale also fits well with our strategic goal of adding focus and investing in our two core platforms, eprocurement and ecommerce. The received consideration will allow the Corporation to improve its balance sheet and create near-term shareholder value within mdf commerce,” Filiatreault said.

Shares of mdf bounced up almost 30 per cent on Tuesday, taking MDF to the high-$2.00 range. That’s still a long way from the stock’s highs in early 2021 of around $16.00, with MDF having gradually fallen to a low of about $1.60 by July, 2022.

But Agostino is staying bullish on mdf, reiterating in his October 5 report a “Buy” rating on the stock while raising his target price from $6.50 to $7.00. 

On the InterTrade sale, Agostino estimated that SPS Commerce is paying about 4.7x EV/Sales for the business, assuming about $15 million in annual. He noted that InterTrade is an asset with less than ten per cent organic growth and recovering EBITDA, whereas by comparison, mdf currently trades at 1.2x next 12 months EV/Sales (and at 0.7x before the new announcement).

“In our view, this transaction underscores the inherent value in MDF as we believe the shares could trade in the 3-4x sales range as the company executes on its Periscope acquisition and its remaining e-Commerce assets begin to recover. Furthermore, the deal, in-line with comparables, provides a positive data point for the tech market and supports our valuation multiple thesis on SaaS companies,” Agostino wrote.

mdf last released its quarterly financials in August where the company’s first quarter fiscal 2023 posted total revenue up 43 per cent year-over-year to $32.2 million and an adjusted EBITDA loss of $1.1 million compared to a loss of $1.5 million a year earlier.

mdf said it added over the quarter 105 buying agencies and 38,000 suppliers to its platforms and is now focusing on accelerating pipeline conversion.

“Due to post-pandemic headwinds in the sector, we expect limited growth for our e-commerce platform in the near-term. We have focused commercial efforts on our order management system, which is gaining traction to help retailers ensure optimal consumer experience for hybrid shopping. As we enter the third year of our 5-year strategic plan with greater scale, higher quality revenue and increased operational focus, we are focusing our attention on a return to profitability,” Filiatreault said in a press release.

Breaking down the Q1 revenue, mdf’s e-procurement platform generated $17.9 million in revenue, up 101 per cent year-over-year, while the company’s US-based e-procurement business grew by 188 per cent to $13.2 million, due in part to its Periscope acquisition. Mdf’s Unified Commerce platform, which includes its e-commerce and supply chain collaboration solutions, produced Q1 revenue of $9.8 million compared to $9.9 million a year earlier. Recurring revenue was up 59 per cent to $26.0 million, representing now almost 78 per cent of total revenue versus 72.5 per cent a year earlier.

Looking ahead, Agostino is calling for fiscal Q2 sales and adjusted EBITDA of $33.3 million and negative $0.7 million, respectively. The analyst sees positive EBITDA for quarters three and four, however, for a full-fiscal 2023 revenue and EBITDA of $130.9 million and $0.9 million, respectively. For fiscal 2024, he is forecasting $128.2 million in sales and $6.4 million in EBITDA.

Agostino said his $7.00 target is based on a 2.2x multiple of his 2024 estimates, which is about a 50 per cent discount compared to mdf’s peer group.

“We note e-commerce peers trade at 3.5x NTM sales while e-procurement peers trade at 7.6x. We continue to believe at current levels investors are paying for one operating segment and getting a free optionality on the other,” Agostino wrote.

At press time, Agostino’s $7.00 target represented a projected one-year return of 148.2 per cent.

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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