DATA Communications Management scores target raise from Clarus

Printing services stock DATA Communications Management (DATA Communications Management Stock Quote, Charts, News, Analysts, Financials TSX:DCM) just got a big target raise from Clarus Securities on the back of a new acquisition, one which nearly doubles revenue for the company. In a Tuesday report, Clarus analyst Noel Atkinson said the deal gives DCM a strong moat along with potentially $20-25 million in annualized cost synergies.

Brampton-based DATA Communications Management, which has corporate printing and technology services serving thousands of clients, including many of Canada’s 100 largest company’s and government agencies, closed on Tuesday on the previously-announced acquisition of the Canadian operations of RR Donnelley & Sons (RRDC) for a cost of $130.8 million. 

The company says the acquisition will give DCM a significantly larger presence in the Canadian market and pro forma revenues of over $520 million in 2022 (DCM’s revenue alone for 2022 was $273.8 million).

“We believe this is a compelling strategic opportunity to accelerate our growth agenda by leveraging our expanded portfolio of best-in-class products and services, stronger execution capabilities, and enhanced speed to market for new innovations,” said DCM President and CEO Richard Kellam in a press release.

DCM’s share price shot up on the initial announcement of the proposed acquisition and, concurrently, the company’s fourth quarter report on February 22. The stock had been in the $1-$1.50 range for almost two years but is currently above $3.00 per share.

Atkinson sees more upside with the closing of the deal and has raised his target from $3.00 to $5.00, representing at the time of publication a projected one-year return of 56 per cent.

“We see the combined business having the scale and technological platform to create a sustainable economic moat within the Canadian corporate printing sector,” Atkinson said.

“Moreover, we see a path towards a medium-term (perhaps 2028-2029e) price target of $16.00/share if DCM can reach $1 billion/year of revenues over that timeframe via sustained organic growth and tuck-in acquisitions,” he said.

On the numbers, Atkinson is now calling for DCM to deliver $451.7 million in 2023 revenue and $554.8 million in 2024. On earnings, the call is for adjusted EBITDA of $50.4 million in 2023 and $69.8 million in 2024.

Atkinson noted that RRDC brings with it about 250 enterprise customers, half of which are brand-new to DCM and the other half bring further breadth and depth.