Kinaxis is headed to $230, says Eight Capital

Eight Capital analyst Christian Sgro sees some encouraging signs from Kinaxis (Kinaxis Stock Quote, Charts, News, Analysts, Financials TSX:KXS). Sgro reaffirmed a “Buy” rating on the stock in a Friday update, saying he has confidence the supply chain management software company will hit its 2023 guidance targets.

Ottawa-headquartered Kinaxis delivered its second quarter financials on August 9, reporting revenue up 31 per cent year-over-year to $105.8 million and gross profit up 28 per cent to $63.7 million. Adjusted EBITDA was up 47 per cent to $15.2 million, which cash from operating activities was up a full 66 per cent to $13.9 million. (All figures in US dollars except where noted otherwise.)

Management reiterated its full 2023 guidance, calling for revenue of $425-$435 million, 25-27 per cent year-over-year growth in its SaaS business and an adjusted EBITDA margin of 14-16 per cent.

“We had a record number of customer wins, an increasing win rate against competitors, and the highest amount of incremental subscription business won in any second quarter in Kinaxis’ history,” said John Sicard, president and CEO, in a press release.

The Q2 topline of $105.8 million was a little ahead of the $103.4 million forecasted by Eight Capital and in-line with the consensus call at $105.7 million. Adjusted EBITDA at $15.2 million was also better than expected, where Sgro had forecasted $12.8 million and the Street’s call was for $14.7 million.

Sgro noted that Kinaxis signed a record number of customers over the quarter and its total backlog increased by 19 per cent year-over-year to $587 million, with the SaaS backlog up 18 per cent to $542 million. 

The analyst said KXS finished the quarter with $293.4 million in cash and short-term investments and no debt. He said M&A would be a key use for capital over the near term, as the company continues its pace of mid-sized “acqui-hires” or adjacent technology acquisitions.

“Our estimates are largely unchanged, generally at the midpoint of management’s reaffirmed guidance. With a large subscription contract being accounted for as term instead of SaaS, we have increased our 2023 term license to the high end of the range while reducing our SaaS estimate,” Sgro wrote.

By the numbers, Sgro is now forecasting revenue to go from $366.9 million in 2022 to $429.3 million in 2023 and to $514.0 million in 2024. Adjusted EBITDA is expected to go from $79.4 million in 2022 to $65.4 million in 2023 and to $88.0 million in 2024.

Sgro reiterated a 12-month target price of C$230 per share, which at press time represented a projected return of 45 per cent.