DCM stock is a buy, Clarus says

His view of the company has stretched out a little longer and Clarus Securities analyst Noel Atkinson remains bullish on Data Communications Management Corp. (Data Communications Management Corp. Stock Quote, Chart, News, Analysts, Financials TSX:DCM).

In a research update to clients October 27, Atkinson maintained his “Buy” rating and one-year price target of $5.50 on DCM, implying a return of 108 per cent at the time of publication.

In the update, Atkinson introduced his 2025 estimates and says he expects bigger things from the company going forward.

“We are introducing our 2025 estimates as a means to portray the Adj. EBITDA and cash flow potential of DCM once it completes the RRDC integration program, he said. “We anticipate that cost savings from consolidation and integration (SG&A reductions, plant consolidations) will be captured in chunks, including in Q4/23e and H2/24e. Management seems quite optimistic that their initiatives to drive up to $30MM/year of cost savings from the combined business can be achieved, and the executive team has extensive experience in this regard. We believe that DCM could possibly drive enough free cash flow over the next 30 months to largely pay off its bank revolver (which had $49MM drawn at the end of Q2/23), and be left with just its FPD term loans by late 2025e – and get back below 1x net debt/Adj. EBITDA. Currently, our model calls for DCM to be exiting 2025 with a run-rate of about $30MM/year of fully-taxed FCF to equity (after lease principal payments and amortization payments on the FPD term loans), or roughly $0.50/share/year. That cash flow would be available to fund acquisitions, stock buybacks, and/or even the initiation of a dividend.”

The analyst thinks DCM will post Adjusted EBITDA of $75.3-million on revenue of $545.3-million in fiscal 2024. The following year, He expects Adjusted EBITDA of $87.5-million on a topline of $569.1-million.

“Our target multiple (6.5x 2024e EV/Adj. EBITDA) remains within the range of current consensus average multiples for the peer group,” the analyst concluded. “DCM shares offer exposure to solid revenue growth, one of the largest and most diversified corporate client bases in Canada, some inflation protection via contractually-permitted input cost passthroughs, and further potential torque if the Company gets traction with new high-margin subscription based enterprise cloud offerings now entering the market. There is also increasing evidence of DCM building an economic moat within the Canadian commercial printing sector after the RRDC acquisition.”