For the second time in a month, Laurentian Bank Securities analyst Nick Agostino has adjusted his price target for the Canadian SaaS logistics company Descartes Systems Group (Descartes Systems Group Stock Quote, Chart, News, Analysts, Financials TSX: DSG), raising its target to US $ 79.00 per share (CA $ 98.65) while reaffirming Laurentian’s “Buy” rating on the stock.
The latest adjustment comes after Descartes purchased GreenMile, an Orlando-based provider of cloud-based mobile route execution solutions for the broader food, beverage and retail verticals, as part a deal that could reach $ 40 million, with an initial $ 30 million and up to $ 10 million. on the basis of the turnover of the first two years following the acquisition.
Waterloo-based Descartes is a global provider of on-demand software solutions as a service for logistics-intensive businesses, where its offerings help businesses optimize and automate processes such as scheduling, routing, planning and monitoring of deliveries, order tracking, invoicing, auditing, payment and filing of customs and security documents for cross-border trade.
GreenMile is just the latest in a series of acquisitions for Descartes in 2021, starting in February with QuestaWeb, a foreign trade and customs compliance zone company, for $ 35.9 million, then in May with Portrix. Logistics Software GmbH for $ 25.1 million.
By acquiring GreenMile, whose software solutions are deployed by companies such as Coca-Cola, PepsiCo, Praxair and Heineken, among others, Descartes can benefit from the management group’s more than 70 years of experience in transportation software and logistics while providing one for the Latin American market, said Agostino.
“GreenMile’s 8 robust SaaS-based, ML-enabled modules enable route dispatching, real-time management against forecast, real-time route optimization, advanced reporting and analytics, and a wide range of ‘mobility applications,’ he said. “GreenMile’s global reach is complemented by a network of value-added resellers including Star-Fleet Solutions and Sifranext, as well as offices in Sao Paulo and Fortaleza, Brazil. “
In announcing the acquisition on July 8, Descartes noted that GreenMile’s innovative and scalable mobile route solutions would help increase efficiency and improve customer satisfaction.
“GreenMile has built a great business focusing on the unique challenges facing food and beverage retail businesses,” said Andrew Roszko, executive vice president of business operations at Descartes, in a statement. hurry.
“Their mobile apps are used by drivers around the world to improve their productivity and provide real-time visibility into deliveries to improve customer service. The platform is complemented by advanced delivery performance analysis and management tools to provide field managers and business leaders with a comprehensive view of field operations. When paired with Descartes’ advanced route optimization tools, we believe it presents a compelling proposition to help distributors improve their last mile delivery operations, ”said Roszko.
The management of Descartes is enthusiastic about the prospect of integrating GreenMile into the fold.
“We continue to invest in a broader set of capabilities to help our customers across various verticals solve their last mile challenges,” said Edward J Ryan, CEO of Descartes. “The combination of GreenMile helps us by adding a team with deep expertise in the food and beverage retail space, expanding our operational footprint and presence in Latin America and adding to our community of companies. truly global distribution. “
With the acquisition of GreenMile now complete, Agostino and Laurentian Bank Securities have re-examined Descartes’ merger and acquisition estimates, pending the transaction leading to a typical merger, with a revenue multiple of approximately 4 to 5 times.
“We are adding US $ 7 million per year associated with this agreement starting in the third quarter,” Agostino said. “We are also increasing our F2023 growth outlook to reflect increased transaction activity and now model year-on-year growth of 14.6% vs. 12.9% previously, approaching DSG’s pre-COVID growth rates. about 16%. We leave our margin profile unchanged.
Both sales and EBITDA figures have grown steadily for Descartes since the first quarter of 2020. Sales grew 26.7% during this period, from $ 78 million in Q120 to $ 98.8 million. dollars in Q122, while EBITDA rose from $ 28.6 million in Q120 to $ 41.1 million in Q122, a jump of 43.7%.
Laurentian forecasts predict that Descartes will cross the threshold of $ 100 million in quarterly sales in Q2 2022 en route to a projection of $ 410.8 million at the end of 2022, with an EV / sales ratio of 13.8x, while EBITDA is expected to reach $ 172.8M in 2022. end, with a forecast of EV / EBITDA around 32.9x.
“Our increased PT reflects: 1) a 6 month lag in our assessment period at mid-F23 / 24 as we approach mid-F2022; 2) higher EBITDA estimates; and 3) a 10 basis point reduction in our DCF discount rate due to a lower risk-free rate. DSG is currently trading at 32.2x EBITDA NTM versus its supply / logistics chain counterparts at 36.1x and software consolidators at 16.7x, ”Agostino wrote.
Agostino’s new price target on Descartes implied a 15% return at the time of publication.