Laurentian Bank Securities analyst Nick Agostino presented his clients with an equity research report on Thursday in which he reaffirmed his “Buy” rating for Canadian logistics company SaaS Descartes Systems Group (Descartes Systems Group stock quote, chart, news, analysts, financial data) while increasing its target from $ 67.00 to $ 71.00 per share. Agostino said a Brexit-related regulatory environment as well as the reopening of economies after the pandemic would continue to serve as a tailwind for Descartes until 2022.

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.

Descartes on Wednesday released its first quarter 2022 financial statements for the three-month period ended April 30, 2021. The company saw revenue increase 18% year-over-year and 6% sequentially to $ 98.8 million, the distribution being $ 88.3. million in service revenues, professional services and other revenues to $ 9.2 million and license revenues of $ 1.3 million. Adjusted EBITDA for the quarter increased 26% year-on-year and 8% sequentially to $ 41.5 million. (All figures are in US dollars.)

Descartes made a few recent acquisitions, first 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. .


“Our customers face complex multi-stakeholder, multi-process supply chain and logistics challenges. This is even truer in recent times when our customers have faced rapid changes in supply, demand and trade regulations, ”CEO Edward J. Ryan said in a press release.

“Our global logistics network is designed for these complex scenarios, helping shippers, carriers, customs authorities and logistics service providers connect and collaborate to run the full lifecycle of shipments. We continue to innovate to help our customers prepare for the challenges of tomorrow, and we continue to add more solutions and business partners to our network. As a result, our customers have trusted us with more of their business, ”said Ryan.

The Descartes share price has seen solid growth for over a decade, and 2020 was no different, delivering a 37% return. So far 2021 has been more low-key, but the stock is up 5% nonetheless.

But Agostino sees more benefits from here, with his new target of $ 71.00 at the time of publication representing a 12-month expected return of 21.3%.

DSG’s upper and lower results were higher than Agostino’s and consensus estimates. The $ 98.8 million in revenue was better than Agostino’s call for $ 94.3 million and Street’s $ 93.1 million, while the $ 41.1 million Adjusted EBITDA of DSGs were also better than the analyst’s $ 38.9 million and the consensus $ 38.3 million.

Agostino noted that revenue headwinds came from staged growth in Brexit-related filings and customs activities, better-than-expected contributions from recent acquisitions, including revenue synergies and improvements in shipping volumes with the reopening of economies, especially in the United States.

“We note that, unlike previous quarters, organic growth was the main driver of first quarter revenue,” Agostino wrote. “With strong contributions to mergers and acquisitions above our estimate of $ 4.1 million, we are speculating on organic growth in the range of 10-11%, above our estimate of 7.8% and significantly above DSG’s historic range of 4-6% (we note that DSG has trended above this rate in recent quarters and expects the same for FQ2).

Agostino said management has reiterated its intention to continue its program of mergers and acquisitions, seeking to add complementary services, products and customers, with Descartes paying around 4 times sales on average for “quality, well-positioned assets. and high growth, ”the analyst said.

“We come away happy that organic growth is the main driver of record Q1 revenue, and believe we are now at a stage where we can start looking at F2022 in a post-COVID era in which DSG is expected to thrive,” as highlighted by the results for the quarter. results, ”he wrote.

“As conditions normalize in F2023, we believe opex savings, income stability and strong earned contributions should put the company in an even better financial position compared to pre-pandemic levels,” Agostino said.

On its balance sheet, Agostino said that DSG ended the quarter with $ 138.1 million in cash and about $ 350 million of an available unused credit facility and another $ 150 million accordion credit facility. The analyst said that while the market remains very competitive with high multiples for quality assets, DSG remains on the lookout for well positioned and growing assets. Agostino also noted management’s decision to increase its EBITDA margin from 35-40% to a target of 38-43% for the remainder of fiscal 2022.

The analyst asks DSG to generate full fiscal 2022 sales and EBITDA of $ 407.3 million and $ 171.2 million, respectively, and fiscal 2023 sales and EBITDA of 459, $ 8 million and $ 196.3 million, respectively.

“Our increased target price reflects higher estimates for F2022 and F2023. DSG is currently trading at 27.6x NTM EBITDA versus its supply / logistics chain counterparts at 32.2x and software consolidators at 15.3x, ”Agostino wrote.

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