Paradigm launches coverage of DCM with a “Buy” rating

Count Paradigm Capital analyst Daniel Rosenberg as a fan of Data Communications Management (Data Communications Management Stock Quote, Chart, News, Analysts, Financials TSX:DCM).

In a report to clients December 9, Rosenberg launched coverage of DCM with a “Buy” rating and price target of $4.50, implying a return of 130% at the time of publication.

The analyst broke down his investment thesis on the company.

“DATA Communications Management Corp. (DCM) is a leading print marketing and communications management company in Canada,” he wrote. “With a diverse blue-chip clientele, DCM integrates deeply into marketing and operations workflows, offering a full suite of services and tools from data asset management to commercial printing. The company has successfully pursued M&A in a largely fragmented industry that is facing ongoing consolidation. Shares retraced following recent earnings results and a postal strike that softened top-line expectations. However, we think the reaction is overblown as the true strength of the operating model will be seen next year with restructuring efforts complete and cross-selling taking hold. At current levels, investors should benefit from increasing cash generation with DCM well positioned to continue to grab market share as a leading provider of print marketing and communications management in Canada.”

Rosenberg thinks DCM will post Adjusted EBITDA of $63.9-million on revenue of $482.2-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $69.5-million on a topline of $494.2-million in fiscal 2025.

“We value DCM with a blend of EV/EBITDA multiple and DCF. We utilize a 5.5x multiple on our 2025 adjusted EBITDA estimate, resulting in a valuation of $4.63/share. For our DCF, we utilize a WACC of 11.25% and a terminal growth rate of 1.5%, resulting in a valuation of $4.25/share. Our blended valuation results in our $4.50 target price,” he added.