KXS stock still has big upside, ATB says

Following the company’s fourth quarter results, ATB Capital analyst Martin Toner thinks there is still money to be made on Kinaxis (Kinaxis Stock Quote, Chart, News, Analysts, Financials TSX:KXS)

On February KXS reported its Q4 and fiscal 2023 results. In the fourth quarter, the company posted Adjusted EBITDA of $19.7-million on revenue of $111.9-million.

“We finished the year with a record number of customer wins, a record backlog that provides strong visibility into 2024 and beyond, and record free cash flow. These achievements were won through a persistently high win rate against key competitors, ongoing progress penetrating all tiers of our markets, strong renewals and expansions, ongoing enhancement of the value we offer, and a focus on balancing rapid growth with profitability,” said John Sicard, president and chief executive officer at Kinaxis. “More and more, we are seeing siloed, legacy methods giving way to end-to-end supply chain orchestration, where Kinaxis is the acknowledged leader. We have made strong investments over the past few years that have put us in excellent position to capture even more share in our markets while we make steady progress towards our midterm profitability goals.”

Toner provided his take on the quarterly results.

“After market close on February 28, Kinaxis reported Q4/23 consolidated revenue of $111.2mm (+13.7% y/y), below consensus of $113.7mm. The company reported gross profit of $68.9mm, in-line with consensus, while gross margin of 61.5% represented a 70bp y/y decline,” the analyst said. “Adjusted EBITDA of $19.7mm slightly beat consensus of $19.0mm. Annual recurring revenue (ARR) growth of 18% was flat on a sequential basis. Management provided FY24 revenue guidance of $483mm-$495mm, representing y/y growth of 13%-16%, and below consensus of $505.7mm. FY24 SaaS revenue guidance of 17%-19% growth came in below consensus expectations of 24% growth. Revenue growth decelerated sharply in Q4, with both SaaS and total revenue growth falling 700bp q/q. Despite slowing growth and a soft FY24 guide, KXS continues to add customer accounts at record rates and build a strong pipeline. We believe in the long-term growth story, as KXS remains well-positioned in a large, growing market. We believe the slowdown in growth has nearly run its course. Signs of improvement in macro conditions are a positive sign, and we believe the company is set up to see a reacceleration in ARR and SaaS revenue growth in 2024. Assuming EBITDA margins get to 30% over a two to three-year time frame, KXS shares trade at 15x-20x EBITDA, which we believe represents an attractive entry point.”

In a research update to clients February 29, Toner maintained his “Outperform” rating and price target of $210.00 on KXS, implying a return of 49.2 per cent at the time of publication.

The analyst thinks KXS will post Adjusted EBITDA of $79.6-million on revenue of $488.4-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $123.8-million on a topline of $590.8-million the following year.