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Softchoice has a 70 per cent upside, says ATB


Strong margins but a weak topline was the assessment from ATB Capital Markets analyst Martin Toner on Canadian IT solutions provider Softchoice Corp (Softchoice Stock Quote, Charts, News, Analysts, Financials TSX:SFTC). Toner looked over the company’s latest quarterly results in a client update on Thursday where he stuck with an “Outperform” rating and one-year target price of C$27.00.

Softchoice, which offers hardware, software, cloud and professional and managed services, announced its fourth quarter and full-year 2022 results on Thursday, with net sales dropping 11.3 per cent year-over-year to $228.9 million. Gross profit was up 0.5 per cent year-over-year to $91.1 million, while adjusted EBITDA was up 19.1 per cent to $31.5 million. Adjusted and diluted earnings were up 18.5 per cent to $0.32 per share. (All figures in US dollars except where noted otherwise.)

The company said it grew its customer base over 2022 and expanded its specialized sales support and IT Solutions teams, which helped drive record gross profit per customer. Fourth quarter business was slower than expected, however. For the year, net sales ended up 2.8 per cent from the previous year to $928.2 million.

“Growth in the year was driven by increased demand for our Software & Cloud solutions, notably in our focus areas of public cloud, security, and workplace. A healthy mix of increased sales to existing customers and contribution from new customers drove our growth, reflecting the benefits of the investments we’ve made in our expanded sales and technical teams,” said CEO Vince De Palma in a press release.


Going over the numbers, Toner said the Q4 topline of $228.9 million was under his estimate at $293.0 million as well as the consensus forecast at $280.7 million. Gross Profit of $86.2 million was below ATB’s call at $91.0 million as well as the Street at $91.1 million, while adjusted EBITDA at $31.5 million was in-line with estimates, where Toner was calling for $31.8 million and the consensus was $31.2 million. Finally, net income at $18.2 million was a beat of Toner’s $15.2 million as well as the Street’s $14.3 million.

“Account executive (AE) headcount, which is a driver of top-line growth, finished at 440, above the Company’s target of 423-433,” Toner said. “The 2022 outlook had been a guidepost since the IPO, but management did not provide guidance for 2023. Gross profit was below our expectations, but the tough macro environment is likely creating short-term pressure.”

Toner noted that Softchoice’s Board approved a 22 per cent increase in its quarterly dividend to $0.11 per share and also renewed its share buyback program after having repurchased 909,268 shares over the fourth quarter and a total of 2.4 million for the 2022 year.

At press time, Toner’s C$27.00 target represented a projected return of 70 per cent. Softchoice’s share price has dropped about 39 per cent over the past 12 months. 

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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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