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Still more upside to mdf commerce, says Echelon

There’s been a nice rally in recent months from mdf commerce (mdf commerce Stock Quote, Charts, News, Analysts, Financials TSX:MDF), but investors can expect more upside to come, according to Echelon Capital Markets analyst Amr Ezzat, who reviewed the company’s latest quarterly results on Monday and reiterated a “Buy” rating on the stock. 

mdf commerce provides e-commerce and strategic sourcing solutions for businesses and organizations in the private and public sectors, and the company has platforms including Orckestra, keCommerce, MERX, Polygon and BidNet. mdf released its second quarter fiscal 2023 financials on Monday for the period ended September 30, 2022, featuring revenue up 32.4 per cent year-over-year to $33.2 million and adjusted EBITDA of $1.4 million compared to a loss of $0.4 million a year earlier.

“This quarter marks a return to positive Adjusted EBITDA achieved through a combination of growth and operational efficiency efforts,” said CEO Luc Filiatreault in a press release.

mdf’s big move more recently was the sale of InterTrade Systems for gross total cash consideration of $65.8 million or 4.9x sales. The sale helped mdf pay off its long-term debt. 

“We now have a stronger foundation and increased operational focus on profitable growth,” said Filiareault.

Looking at the fiscal Q2 numbers, Ezzat said the topline of $33.2 million arrived in-line with estimates, where he had forecasted $33.4 million and the consensus projection was for $33.1 million. On EBITDA, the $1.4 million realized was better than expected, where Echelon had called for negative $2.3 million and the Street was at negative $1.3 million. 

Breaking down the Q2 revenue, Ezzat noted that mdf’s Unified Commerce segment was down 7.9 per cent year-over-year to $9.2 million or 27.8 per cent of sales, where the company’s e-commerce solutions dropped by 12.6 per cent to $5.8 million as a result of lower customer deployments and lower transactions volumes, particularly in the e-grocery sector. On the other hand, mdf’s E-procurement segment was up 71.2 per cent to $19.3 million, primarily as a result of mdf’s acquired Periscope business.

With his retained “Buy” rating, Ezzat also reiterated a $5.50 target price, which at the time of publication represented a projected one-year return of 62.2 per cent.

“With the debt issue in the rear-view mirror, we removed the ‘Speculative’ qualifier from our rating last month. Our $5.50/shr target price is unchanged and implies a 2.0x sales multiple, a considerable discount to Canadian high visibility IT peers (4.1x). While MDF shares are 50.7 per cent higher since the sale of InterTrade, the stock continues to trade at impaired valuation levels at 1.2x sales versus 1.1x pre-disposition, giving no credit to the removal of the debt overhang,” Ezzat wrote.

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