Data Communications Management has 134% upside, Paradigm says

Its fourth quarter results are in the books and Paradigm Capital analyst Daniel Rosenberg thinks there is still a lot of money to be made on Data Communications Management (Data Communications Management Stock Quote, Chart, News, Analysts, Financials TSX:DCM).

On March 12, DCM reported its Q4 and fiscal 2024 results. In the fourth quarter, the company posted Adjusted EBITDA of $15.8-million on revenue of $116.2-million, down 10.6%, year-over-year.

“2024 was a pivotal year for DCM highlighted by the successful completion of the complex integration of the Moore Canada Corporation (“MCC”) acquisition which we accomplished on budget and nearly a full year ahead of our original schedule,” CEO Richard Kellam said. “We are now well-positioned to leverage our larger scale, incremental capacity, expanded product mix and the skills and capabilities of our team to drive profitable growth, return to pre-acquisition levels of +30% gross profit margins, and deliver strong free cash flow going forward.”

Rosenberg says there is a lot of the positive to take away from the report.

“DCM reported Q4 results that were at the upper end of preliminary guidance,” he wrote. “Recall, the company recently completed the integration of its largest acquisition, Moore Canada, which should translate into ramping up free cash flows next year. Subsequent to the quarter, DCM declared a special dividend and a new dividend program, which speaks to management’s confidence in the strength of FCF generation going forward. A strong five-year outlook was reaffirmed that targeted a +5% revenue CAGR, ahead of industry growth rates as management increasingly invests in differentiated offerings and wins new business.”

In a research update to clients March 13, Rosenberg maintained his “Buy” rating and price target of $4.50 on DCM, implying a return of 134% at the time of publication.

The analysts thinks the company will post Adjusted EBITDA of $66.7-million on revenue of $489.8-million in fiscal 2025. He expects Adjusted EBITDA of $71.3-million on a topline of $501.6-million in fiscal 2026.

“With integrations, capital investments and the exiting of lower-margin businesses complete, we continue to see cash flow acceleration in H2/25 and beyond. We favour DCM’s focus on building an increasingly differentiated offering that can drive value in its significant enterprise customer base,” Rosenberg concluded. “We value DCM with a blend of EV/EBITDA multiple and DCF. We utilize a 5.5x multiple on our 2026 adjusted EBITDA estimate. For our DCF, we use a WACC of 11.25% and a terminal growth rate of 1.5%. Our blended valuation results in our $4.50 target price. Shares trade at 4.6x 2026e EV/EBITDA versus peers at 5.3x.”