Buy Kinaxis on the dip, says ATB Capital

A “sort-of” miss on quarterly revenue may put pressure on Kinaxis (Kinaxis Stock Quote, Charts, News, Analysts, Financials TSX:KXS) shares, but savvy investors should take it as an opportunity to buy a company with still plenty of tailwinds in the supply chain management space. That’s the scoop from ATB Capital Markets analyst Martin Toner, who reviewed Kinaxis’ fourth quarter results in a client update on Wednesday where he reiterated an “Outperform” rating and kept at 12-month target price of C$200.

Ottawa-based supply chain management platform Kinaxis reported its Q4 2022 financials after market close on Wednesday, featuring consolidated revenue up 43.8 per cent year-over-year to $98.5 million. The topline missed the consensus estimate of 99.4 million but was a beat of the ATB estimate of $97.6 million. (All figures in US dollars except where noted otherwise.)

Gross profit of $61.3 million was also a miss of the Street’s $62.9 million but a beat of ATB’s $60.5 million estimate, while adjusted EBITDA was up a full 87 per cent to $21.1 million beating both the consensus at $13.5 million and ATB at $9.6 million.

Looking ahead, management guided for 2023 revenue of $420-$430 million, which was above the consensus forecast of $416.5 million. Kinaxis sees its SaaS revenue growing by between 25 and 27 per cent over the year, with adjusted EBITDA expected to come in between $55 and $65 million.

“Kinaxis finished the year with clear signs of momentum in the business. We exceeded our initial total revenue and adjusted EBITDA targets despite currency headwinds, grew our customer base by 40 per cent, and achieved Rule of 402 performance,” said John Sicard, President and CEO, in a press release.

Digging into the details, Toner said the fourth quarter SaaS revenue of $58.8 million was up 25.6 per cent year-over-year, in-line with consensus, and he noted management’s medium-term target for SaaS revenue growth of 30 per cent, with EBITDA margin at 25 per cent.

“Kinaxis continues to benefit from secular tailwinds around supply chain management. The Company also continues to invest in what it believes is a significant opportunity,” said Toner.

“Given that opportunity and the well-known cycle of subscription term license revenue, we do not believe 2023 adjusted EBITDA margin guidance below consensus should concern investors. We would view weakness in the shares as a buying opportunity,” he wrote.

At press time, Toner’s C$200 target represented a projected one-year return of 25.8 per cent.