MDF Commerce’s profitability looks better, says Laurentian

Laurentian Bank Securities analyst Nick Agostino thinks MDF Commerce (MDF Commerce Stock Quote, Charts, News, Analysts, Financials TSX:MDF) is on a path to EBITDA recovery. Ahead of quarterly reporting from MDF, Agostino delivered an update to clients on Friday where he reiterated a “Buy” rating on the stock and $7.00 target price, good for a projected one-year return of 67.1 per cent at the time of publication.

Montreal-based MDF Commerce is a provider of e-commerce solutions and an operator of e-business networks for procurement, publishing and online marketplaces across a number of verticals. The company is due to release its fiscal third quarter 2023 financials on February 13, with Agostino expecting sales of $31.7 million, representing a year-over-year improvement of 3.4 per cent. On adjusted EBITDA, Agostino is calling for $1.8 million, which would be a 142 per cent rise over the previous year’s third quarter EBITDA of $740K. Agostino said EBITDA margins should get to 5.6 per cent compared to 2.4 per cent a year earlier.

“With the conclusion of the fair value accounting adjustment from the Periscope deal, we look for this to add ~$2 million in sales year-over-year. By segment we look for solid growth in e-Procurement, overcoming a slowdown in e-Commerce,” Agostino wrote.

The analyst said MDF will also have some tailwinds from foreign exchange, as the company does about 61 per cent of its sales in the US, where the USD has appreciated about seven per cent year-over-year.

“We expect opex to be slightly up quarter-over-quarter but as MDF’s cost base is largely C$ based, we look for favourable F/X to benefit EBITDA,” Agostino wrote.

Agostino said ongoing efficiency efforts will help MDF’s bottom line, while these will be in part offset by ongoing foundational investments.

On a comps basis, the analyst estimates MDF to be currently trading at 2.1x next 12 months EV/Sales versus its peer group average at 4.7x (Agostino has its e-commerce peers trading at 4.0x and its e-procurement peers trading at 7.7x).

“We believe at current levels investors are paying for one operating segment and getting a free optionality on the other,” he said.

Longer term, Agostino thinks MDF will finish its fiscal 2023 at revenue of $127.2 million and adjusted EBITDA of $3.3 million and then move to 2024 revenue at $128.7 million and EBITDA at $8.5 million.

MDF shares hit a high of about $16 in early 2021 before falling to as low as $1.60 per share by July of last year. The stock has picked up some ground over the past half-year and is currently trading around the $4 mark.