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National Bank Financial delivered a fourth quarter earnings preview on January 23, saying while the road ahead may be bumpy for tech stocks, investors looking at a longer term horizon still have some select names to choose from. In any industry, opportunities can emerge in the wake of crisis, and with the pandemic still very much in effect, the technology sector is a prime example. Ahead of the Q4 reporting session, National Bank of Canada analysts Richard Tse and John Shao were cautious in their overview of technology in the midst of a shift from growth to value, though they also noted change has been minimal within their particular coverage window. “No doubt, a lot is riding on earnings season given the heightened volatility across Tech and while we provide our expectations for our coverage group in this note, the reality is that the entire group will be drawn in by what happens with the megacap (largely U.S.) tech names that begin reporting over the next few weeks,” Tse said. The report also made note of the contributions of moderate estimate revisions in the S&P Tech Index in relation to any pullbacks that have been seen in the sector on top of the standard rates and inflation, leading to a question of whether or not those expectations are too conservative, or are closer to reality. In general, Tse and Shao remain optimistic about the sector, particularly with respect to a few names like Docebo, Lightspeed and Shopify which the analysts say demonstrate long-term investment opportunities given certain valuation disconnects. And with those dynamics in mind, Tse and Shao presented 22 stocks in their quarterly preview, listed below in alphabetical order. Altus Group (Altus Group Stock Quote, Charts, News, Analysts, Financials TSX:AIF) National Bank Rating: Outperform (Unchanged) Target Price: $80/share (Unchanged) Projected one-year return: 25.1 per cent (all returns are listed as of publication date of each respective report) The Toronto-based independent real estate consulting services provider appears to be on the right track, with Tse believing the company’s Altus Analytics revenue will reach its $400 million target by the end of its 2023 fiscal year. His view is supported by the company’s potential for future tuck-in acquisitions, which Tse notes should be a catalyst for the stock moving forward. “We continue to like AIF for its strong defensive attributes (e.g., FCF generating capabilities), and believe the company is well-positioned to capitalize on its growth targets,” Tse said. “Further, we see potential option value from M&A paired with an increasingly tech-focused Property Tax segment moving forward.” Tse expects in-line results from Altus' fourth quarter, calling for $161 million in revenue and EPS of $0.32 per share. Blackline Safety (Blackline Safety Stock Quote, Chart, News, Analysts, Financials TSXV:BLN) National Bank Rating: Outperform (Unchanged) Target Price: $10/share (Unchanged) Projected one-year return: 58.7 per cent Blackline Safety, a Calgary-based that develops, manufactures and markets worker safety monitoring products and services, already turned in a strong fourth quarter, with its $19.3 million revenue report coming in well ahead of the NBF projection of $16.1 million and the consensus estimate of $16.7 million. The beat was fuelled by a 129 per cent year-over-year increase in product revenue, along with a number of key contract wins. “While the FQ4 results have fully reflected the benefits from the strong hardware sales, we’d also expect to see the inflows of the associated service revenue starting in Q2/F22 which would lay a solid foundation for growth in the new year,” Shao said. “With a suite of competitive products and services and less than one per cent of the market share, we see a long runway of growth ahead of the company,” Shao added. CGI Group (CGI Group Stock Quote, Chart, News, Analysts TSX:GIB.A) National Bank Rating: Outperform (Unchanged) Target Price: $135/share (Unchanged) Projected one-year return: 28.4 per cent Tse believes CGI’s upcoming quarterly results will be in line with projections, a potential beneficiary of the IT Services sector becoming increasingly in demand on account of the pandemic prompting more automated processes, and the macro outlook has global IT Services accelerating. Tse projects 4.7 per cent company growth in the 2022 fiscal year, though M&A activity could push that number even higher. For the Q4, Tse is calling for $3.098 billion in revenue and EPS of $1.44 per share. “We continue to believe IT Services will be one of the segments in tech to benefit from the acceleration in digital transformation accelerated by COVID,” Tse said. “With Management explicitly outlining its plans to deploy ~$1 billon in capital over the next 12 months, we expect that CGI’s growth rate has upside as we move through the year,” he added. Constellation Software (Constellation Software Stock Quote, Chart, News, Analysts TSX:CSU) National Bank Rating: Sector Perform (Unchanged) Target Price: $2,100/share (Unchanged) Projected one-year return: 1.8 per cent Expecting in-line results from its fourth quarter, Tse said Constellation Software deployed approximately $1.2 billion in capital in the 2021 fiscal year, significantly outpacing the NBF expectation of an $800 million deployment. Spinoffs could be an area of focus for value creation moving forward, particularly with Topicus (83.4 per cent year-over-year increase) serving as a positive case study. Overall, Tse sees a balanced risk-reward profile for CSU. “While valuations in the tech sector returned to more “reasonable” levels in the back half of FQ4; more important is our view that Constellation Software has deployed enough capital to maintain its 15 per cent growth rate (based on our estimate),” Tse said. “That said, we estimate Constellation’s relative internal returns today are running three per cent below the average five-year run-rate based on our analysis.” D2L Inc. (D2L Stock Quote, Charts, News, Analysts, Financials TSX:DTOL) National Bank Rating: Outperform (Unchanged) Target Price: $20/share (Unchanged) Projected one-year return: 33.9 per cent According to Shao, D2L, a Kitchener-based education solutions provider, is likely to release better than expected financial results in its upcoming quarterly report as e-learning continues to grow. Shao expects e-learning to provide a multi-year tailwind for D2L, particularly with new COVID variants of concern and more institutions and organizations moving toward a hybrid model. The analyst is calling for Q4 revenue of US$41 million and EPS of negative US$0.09 per share. “D2L mainly serves large and established institutions and organizations such as K-12 school boards, universities and corporate customers. In addition, the Cloud-native strategy and the SaaS revenue model provide visibility into future growth,” Shao said. “That said, we’d also note the Company is trading at a discount to peers - in our view, the valuation discount mainly comes from uncertainties in future growth ahead of a normalized post-COVID environment.” Docebo Inc (Docebo Stock Quote, Chart, News, Analysts, Financials TSX:DCBO) National Bank Rating: Outperform (Unchanged) Target Price: US$85/share (previously US$100/share) Projected one-year return: 62.1 per cent Much like D2L, Toronto-based Docebo appears poised to capitalize on greater demand for remote operations, particularly with its various corporate training modules. After signing deals with companies like Zoom and Neiman Marcus, Tse believes the company will continue to build momentum through its partner strategy. “As a leading Corporate LMS platform, we continue to believe Docebo’s technical edge comes from its AI and social learning capabilities related to its ability to customize and optimize content,” Tse said. “We see growth coming from multiple drivers: (1) new logos; (2) cross-/up-selling to existing customers; and (3) larger deal sizes.” For the upcoming fourth quarter numbers from Docebo, Tse is expecting them to arrive in-line and is calling for revenue of US$29 million and EPS of negative US$0.05 per share. "With the pullback in high growth (valuation) names, particularly those lacking profitability in the short term, we’d be looking to opportunistically wade into DCBO on pullbacks. We continue to believe there is meaningful upside runway in this name as we look beyond the recent shift to value stocks," Tse wrote. E INC (E Automotive Stock Quote, Chart, News, Analysts, Financials TSX:EINC) National Bank Rating: Outperform (Speculative Risk Rating - Unchanged) Target Price: $21.50/share (previously $24/share) Projected one-year return: 43.4 per cent Having recently initiated coverage on the company, Tse believes E INC will continue to build momentum despite Q4 being seasonally soft, part of a greater industry shift from physical to digital automotive wholesale auctions. Of particular interest to Tse is the company’s expansion into the United States through its partnership with Auction Edge in the name of trying to accelerate organic growth. “E INC competes in a highly competitive industry with large well-established incumbents such as KAR and Manheim,” Tse said. “That said, we believe E INC has the potential to be a disruptive player given its seasoned Management team backed by an investor who has a successful record of scaling an automotive (tech) business.” Tse is expecting E INC's Q4 to feature revenue of US$18 million and EPS of negative US$0.09 per share. Farmers Edge (Farmers Edge Stock Quote, Chart, News, Analysts, Financials TSX:FDGE) National Bank Rating: Sector Perform (Unchanged) Target Price: $4/share (previously $5/share) Projected one-year return: 37.5 per cent In Tse’s view, the fourth quarter results from Winnipeg-based digital agriculture solution provider come with some downside risk despite company management’s optimism. Going forward, Tse notes a significant opportunity for Farmers Edge could come from carbon offsets, with the potential of carbon’s current price point of $20/metric tonne doubling by 2030. “That opportunity could be a notable driver of adoption for the Farm Command Platform,” Tse said. “However, the execution in recent quarters suggests considerable volatility and with the current inflation backdrop for inputs, we believe it will weigh on adoption short term.” The analyst said he sees downside risk to the company's fourth quarter results, however, with his estimates at US$18 million in revenue and negative US$0.20 per share in EPS. Kinaxis (Kinaxis Stock Quote, Charts, News, Analysts, Financials TSX:KXS) National Bank Rating: Outperform (Unchanged) Target Price: $225/share (Unchanged) Projected one-year return: 47.5 per cent The Ottawa-based provider of cloud-based subscription software could have upside to its fourth quarter financial numbers through its RapidResponse supply chain planning platform, with Tse noting that the software vendors offering supply chain solutions have collectively seen 2-5x increased deal flow over the past two years on account of the pandemic. Tse is estimating US$68 million in Q4 revenue and US$0.19 per share. “In the past, the Company has generally deployed capital ahead of growth, and we believe the most recent investment cycle is no different,” Tse said. “Management has continued its investment into data centres, sales and support. In our view, we believe that’s in anticipation of the growing demand it sees in its pipeline.” Lightspeed Commerce (Lightspeed POS Stock Quote, Chart, News, Analysts, Financials TSX:LSPD) National Bank Rating: Outperform (Unchanged) Target Price: US$90/share (previously US$120/share) Projected one-year return: 200 per cent A short-seller report helped lead to a slash in Lightspeed’s target price, with Tse noting a greater importance on the company’s upcoming quarterly financials to offset any concerns. Tse points to the potential for pullbacks as an opportunity to get in on the company. “Our view has been that the overhang won’t lift quickly and will require consistent execution before it begins to fade. No doubt, that underscores the importance of the upcoming quarterly results,” Tse said. “On that, we see an in-line quarter with some outsized risk, care of selective global lockdowns in the quarter particularly as it relates to the hospitality segment.” Tse is calling for Q4 revenue from LSPD at US$144 million and EPS at negative US$0.10 per share. Magnet Forensics (Magnet Forensics Stock Quote, Charts, News, Analysts, Financials TSX:MAGT) National Bank Rating: Outperform (Unchanged) Target Price: $50/share (previously $55.00) Projected one-year return: 87.3 per cent Shao isn’t shying away from projecting a strong fourth quarter for Magnet Forensics, calling it one of the best-performing tech IPOs of 2021 as the Waterloo-based digital investigation software company derives its combination of growth and profitability from advantages like its extensive artifact library, a complete digital forensic suite, and a highly efficient sales model. “We believe Magnet Forensics is an early leader in this market with a suite of competitive offerings to target both the public and enterprise clients,” Shao said. “The quality of its business model is further underscored by its financial performance with strong growth and profitability profiles. That said, we’d also note its valuation is not only driven by the Company’s performance but also by the broad market sentiment.” Shao expects Q4 revenue at US$19 million and EPS at US$0.03 per share. mdf commerce (mdf Commerce Stock Quote, Chart, News, Analysts, Financials TSX:MDF) National Bank Rating: Sector Perform (Unchanged) Target Price: $6/share (previously $8/share) Projected one-year return: 29.6 per cent As a company in transition in relation to its focus (eprocurement, supply chain collaboration, eCommerce), Tse believes the Quebec-based mdf is in too many markets simultaneously. Tse’s present curiosity with mdf is largely derived from the performance of its recent acquisition, Periscope Holdings, in its first full quarter under the mdf umbrella as he does not see any other immediate near-term catalyst for the company. Tse has estimated mdf's Q4 at $33 million in revenue and negative $0.06 per share in EPS. “We see a balanced risk-reward profile,” Tse said. “We acknowledge the company has the financial flexibility to execute an ambitious growth strategy, and for that reason, we believe there’s potential option value in the name.” Nuvei (Nuvei Stock Quote, Chart, News, Analysts, Financials TSX:NVEI) National Bank Rating: Outperform (Unchanged) Target Price: US$130/share (previously US$160/share) Projected one-year return: 118.9 per cent Another victim of a short attack, Nuvei rebounded on the final day of trading in 2021, completing a 30 per cent recovery in a two-week period. Going forward, Tse expects strong volume growth thanks to organic and acquisition measures, while the company’s business model naturally hedges against high inflation rates. The company also continues to expand into high growth verticals through the acquisitions of SimplexCC and Mazooma, giving the company’s tech stack greater capabilities. “While off its all-time high, we think that bounce was off the back of the company’s profitability and underlying cash flow strength,” Tse said. “We continue to believe investors can opportunistically wade into this name. As for FQ4, we’re expecting solid results from Nuvei as the company executes its strategy to drive scale from recent investments.” Tse estimates Nuvei's Q4 at a topline of US$210 million and EPS at US$0.42 per share. OpenText (OpenText Stock Quote, Chart, News, Analysts, Financials TSX:OTEX) National Bank Rating: Outperform (Unchanged) Target Price: US$60/share (Unchanged) Projected one-year return: 29.5 per cent According to Tse, the company is in a good spot in relation to its defensive attributes, with potential upside in valuation on account of organic growth. OpenText is also in a position to benefit from increased cybersecurity spending from CIOs, according to the Gartner CIO Agenda. The analyst is expecting an in-line Q4 from OTEX at US$871 million in revenue and US$0.89 per share in EPS. “The focus for F22 will be on organic growth as the company has underscored this will be its priority under a challenging market for M&A in light of heightened valuations in the sector,” Tse said. “Regardless, acquisitions are still on the table with OpenText acquiring Zix Corporation, a SaaS-based email encryption, threat protection and compliance solutions vendor targeting SMBs.” Pivotree (Pivotree Stock Quote, Chart, News, Analysts, Financials TSXV:PVT) National Bank Rating: Outperform (Unchanged) Target Price: $8/share (previously $9.00) Projected one-year return: 61.6 per cent Shao believes Pivotree’s fundamental performance is showing signs of improvement, evidenced by achieving sequential growth in its most recent quarter after previous decreases, as well as a rebound in bookings based on some of the contracts the company signed close to the end of its most recent quarter. “We’re expecting an in-line FQ4 given the continued headwind from the previous churn of some legacy customers, partially offset by contributions from its two recent acquisitions,” Tse said. “That said, going into F2022, we’d expect to see organic growth accelerate, care of a much cleaner comparable period.” Shao is calling for Q4 revenue at US$20 million and EPS of negative US$0.06 per share. Q4 Inc (Q4 Inc Stock Quote, Chart, News, Analysts, Financials TSX:QFOR) National Bank Rating: Outperform (Unchanged) Target Price: $12/share (previously $15/share) Projected one-year return: 74.4 per cent With a scalable platform and a lingering appetite for virtual events in a post-pandemic world, Tse believes Q4 is well-positioned to take advantage, potentially through the acquisition of complementary capabilities like deal management, research management, and asset management solutions. Also helping the company’s cause is a strong partnership with the New York Stock Exchange, which approximately 20 per cent of all IPOs within the Americas in 2021. “Although this is a relatively new coverage name for us, we believe Q4 is a company that has been able to leverage both its superior platform (relative to peers) and its strategic partnerships to capture an industry-leading market share,” Tse said. Tse sees the fourth quarter for the company at US$13 million in revenue and EPS of negative US$0.20 per share. Real Matters (Real Matters Stock Quote, Chart, News, Analysts, Financials TSX:REAL) National Bank Rating: Sector Perform (Unchanged) Target Price: $8/share (previously $10/share) Projected one-year return: 24.2 per cent Tse sees outsized risk to Real Matters' fiscal first quarter (calendar fourth), saying that Real Matters is a company that could get hit by its correlation with industry volumes as it relates to borrowing, particularly with re-financing volumes down 40 per cent from 2020 to 2021. Going forward, the company’s Titles and Closing segment appears to be the next growth target in re-rating the stock, growth potential coming from the addition of Tier 1 and additional Tier 2 lenders accounting for two-thirds of Title Spend in the United States. “While we see short-term risk from a macro perspective, we believe there continues to be potential option value from the Company’s T&C segment,” Tse said. “Even so, given the broad backdrop for financings and recurring changes in operating disclosures, we’d wait for some early signs of consistent execution before moving back into this name.” On Q4 revenue Tse is expecting US$31 million and on EPS US$0.06 per share. Shopify (Shopify Stock Quote, Chart, News, Analysts, Financials NYSE:SHOP) National Bank Rating: Outperform (Unchanged) Target Price: US$2,000/share (Unchanged) Projected one-year return: 126.7 per cent Despite year-over-year comparisons continuing to get tougher, Shopify continues to perform in the eCommerce space, Tse said, with this quarter’s expected in-line results coming from strong sequential merchant additions driven by a renewed focus on international markets, along with its entry into financial services through its Shop Pay platform. “We continue to believe Shopify is in the early stages of a market that’s structurally changing – shifting increasingly towards eCommerce,” Tse said. “We believe Shopify remains a leading eCommerce disruptor and we believe upside in the stock will come from a number of different incremental growth drivers.” SHOP's Q4 is expected to present with revenue of US$1.307 billion and EPS of US$1.39 per share. Softchoice (Softchoice Stock Quote, Chart, News, Analysts, Financials TSX:SFTC) National Bank Rating: Sector Perform (Unchanged) Target Price: $30/share (previously $32/share) Projected one-year return: 44.2 per cent Shao sees a significant growth opportunity for Softchoice if it wants to lean into getting more enterprise clients, identifying a potential $60 billion market opportunity based on its current enterprise clientele, which generates a quarter of the company’s profits despite accounting for just 11 per cent of the company’s customer base compared to its SMB and commercial clients. “Compared to last year, we’d say the relative valuation to peers looks much more reasonable, especially for a name that has defensive attributes such as a stable customer base and strong cash flow profile,” Shao said. “These attributes might potentially lay the foundation for some relative outperformance in a year that’s considered tough for Tech.” Shao is calling for Q4 revenue of US$244 million and EPS of US$0.24 per share. Tecsys (Tecsys Stock Quote, Chart, News, Analysts, Financials TSX:TCS) National Bank Rating: Outperform (Unchanged) Target Price: $65/share (Unchanged) Projected one-year return: 65.2 per cent Shao sees a strong quarter coming for Tecsys, predicated primarily on a 50 per cent increase in bookings on a year-over-year basis, and more than three times the previous quarter as it returns to a normal run rate and sorts out its internal capacity issues relating to legal and procurement. The result is expected to be US$36 million in revenue and US$0.06 per share in EPS. “If anything, we’d continue to point out the SaaS transition as the biggest catalyst in driving the valuation re-rating for this name,” Shao said. “In our view and similar to other supply chain names we cover, we believe the pandemic has created a multi-year runway for a Company with a suite of competitive offerings in the supply chain execution market.” TELUS International (Telus International Stock Quote, Chart, News, Analysts, Financials NYSE:TIXT) National Bank Rating: Outperform (Unchanged) Target Price: US$50/share (Unchanged) Projected one-year return: 83.5 per cent Without the expectation of any meaningful revenue deviation, Tse expects in line results for TELUS International in its upcoming quarter, though he does acknowledge the potential for weaker short-term margins on account of a tight labour market. “TELUS International is a Company that’s been able to leverage its roots in Customer Experience,” Tse said. “Time has allowed the Company to hone and fortify its offering which has already shown in its execution with expectations of outsized growth versus the sector.” Tse has estimated US$597 million in revenue and US$0.25 per share in earnings. Thinkific Labs (Thinkific Labs Stock Quote, Chart, News, Analysts, Financials TSX:THNC) National Bank Rating: Outperform (Unchanged) Target Price: $15/share (previously $20/share) Projected one-year return: 147.1 per cent In a similar vein to D2L and Docebo, Thinkific Labs is in the online education space as a course creator platform, with the ongoing rollout of its Payments platform in Canada and the United States serving as a next step as the company tries to get a greater piece of the available GMV “In our view, the company continues to execute its strategy laid out at the time of its IPO,” Tse said. “On that, Thinkific remains in investment mode given its early days in the Company’s growth trajectory. Our view is that such investments will continue to fortify what we believe to be a leading platform for course creators. All-in, we view Thinkific as a developing name with some short-term risk from challenging year-over-year comparables, care of COVID.” Tse has forecasting Q4 revenue of US$11 million and negative US$0.11 per share in earnings.

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