D2L keeps Buy rating with Eight Capital

A nice profit ramp is on display from online learning platform company D2L Inc (D2L Inc Stock Quote, Charts, News, Analysts, Financials TSX:DTOL), which has helped Eight Capital analyst Christian Sgro maintain a “Buy” rating on the stock. Sgro reviewed the latest quarterly figures from D2L in a Friday report, saying the stock is trading at an attractive valuation compared to its peers.

Toronto-based D2L, which has a cloud-based learning management system for higher ed, K-12 and corporate clients, announced its first quarter fiscal 2024 numbers on June 7 for the period ended April 30, 2023. Revenue was up six per cent year-over-year to $44.2 million and up nine per cent on a constant currency basis to $45.5 million. (All figures in US dollars except where noted otherwise.)

The company said it added to its global education base, taking on clients such as Charles Sturt University, European Association of International Education, Universidade São Francisco, Taylor University, University of Niagara Falls and the Savannah-Chatham County Public School System.

“Despite the macroeconomic environment, we are seeing an improving new business environment overall as leaders across education and business prioritize investments in better learning experiences,” said John Baker, CEO, in a press release. 

“Our strong win rate and momentum in higher education position the company particularly well for renewed activity in this market. I’m proud of how our team is accelerating transformation as a trusted partner to our clients, working closely with them to redefine the future of learning,” he said.

D2L surprised to the upside with its Q1, with the $44.2 million revenue coming in ahead of Sgro’s estimate at $43.4 million and the consensus call also at $43.4 million. Adjusted EBITDA of $2.8 million was also above Sgro’s forecast at $0.3 million and the Street at $0.1 million.

Sgro said the company’s significant contract wins both in North America and internationally give him confidence that D2L is gaining market share in its core higher education bracket, and he noted that its pipeline of prospects is both healthy and well-diversified.

Sgro estimated that D2L is currently trading at 10.6x EV/adjusted EBITDA for 2024’s numbers, which compares to its key academic learning peers at 18.4x.

“The FQ1 results and unchanged messaging support management’s commentary that the demand environment is stabilizing. In what we think is a softer-than-normal macro, we believe the nine per cent year-over-year constant currency revenue is good progress against the mid-term operating targets. Further, we continue to see upside to current adj. EBITDA guidance with the view that some conservatism is built in for any opportunistic reinvestment. Our BUY thesis is underpinned by upside to fundamentals and valuation,” Sgro wrote.

With his “Buy” rating, Sgro maintained a 12-month target of C$11.00, which at press time represented a projected return of 33 per cent.