D2L keeps “Buy” rating at Eight Capital

Following the company’s most recent financial results, Eight Capital analyst Christian Sgro has maintained his “Buy” rating on D2L (D2L Stock Quote, Chart, News, Analysts, Financials TSX:DTOL).

On April 3, DTOL reported its Q4 and fiscal 2024 results. In the fourth quarter, the company posted Adjusted EBITDA of $3.5-million on revenue of $47.6-million, a topline that was up 11% over the same period a year prior.

“It was a strong fourth quarter to close out a year in which we made significant progress on our plan to balance continued top-line growth with meaningfully improved operating leverage and profitability,” CEO John Baker said. “Fourth quarter subscription and support revenue grew 12 per cent, subscription gross profit increased by 19 per cent, adjusted EBITDA was up substantially and we generated more than $15-million in cash flow from operations for the fiscal year — adding to the company’s strong financial position. We continue to win great new customers in our core markets and recently became the No. 2 in market share in North American higher education by enrolment (3) — a testament to the quality of our learning platform and our relentless focus on being an active strategic partner to our customers.”

“D2L’s established leadership, share gains, and proven margin expansion make the fundamental case attractive,”Sgro said of the quarter. “With the need for digitization and AI as medium-term tailwinds, we see the potential for D2L’s organic growth to accelerate (consistent with the company’s view) as margins continue to track higher.”

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In a research update to clients April 4, the analyst maintained his “Buy” rating and one-year price target of $13.00 on D2L.

Sgro thinks the company will post Adjusted EBITDA of $22.2-million on revenue of $199.5-million in fiscal 2025. He expects those numbers will improve to Adjusted EBITDA of $34.5-million on a topline of $222.3-million in fiscal 2026.

“D2L currently trades at 9.1x compared to key academic learning peers at 13.8x. Key risks to our target include spending slowdowns or intensifying competitive conditions,” the analyst added.