Descartes Systems Group Inc DSGX

Primary Symbol: T.DSG

Technology Software - Application

The Descartes Systems Group Inc. is focused on logistics and supply chain management business processes. It provides on-demand, software-as-a-service (SaaS) solutions focused on improving the security and sustainability of logistics-intensive businesses. The Company allows customers to use its modular, SaaS solutions to route, track and help improve the safety, compliance of delivery resources; plan, allocate and execute shipments; rate, audit and pay transportation invoices; access global trade data; file customs and security documents for imports and exports; and complete other logistics processes by participating in the multimodal logistics community. Its solutions include cloud-based and consist of B2B service connectivity and messaging, broker and forwarder enterprise systems, global trade intelligence, regulatory compliance, e-commerce shipping, transportation management and routing. It also provides customs declaration software for logistics services providers and shippers.

TSX:DSG - Post by User

Descartes Systems Group Inc

Bullboard Posts

Post by retiredcfon May 25, 2020 7:13am

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Post# 31067826

RBC Preview

Current and upside scenario targets are US$50.00 and US$57.00. GLTA

May 25, 2020

The Descartes Systems Group Inc.

Q1 preview: Recurring revenue to help mitigate organic growth deceleration

Our view: Descartes’ Q1 (quarter ended April) includes more than a full month of global trade and supply chain disruptions related to COVID-19. While its high mix of recurring and contracted revenues would likely mitigate the impact, we believe that organic growth is still likely to decelerate Q1. We maintain our Outperform rating given Descartes’ ability to compound capital over time.

Key points:

Expect Q1 revenue slightly below consensus. Descartes will report Q1/ FY21 results (Apr-qtr) on May 27. We forecast Q1 revenue to increase 9% Y/Y (3% constant currency organic) to $85.1MM, slightly below consensus of $85.5MM. Our outlook calls for adj. EBITDA to increase 13% Y/Y to $32.4MM, slightly above consensus ($32.1MM) on lower costs. For GAAP EPS, we expect $0.12, below consensus of $0.13 on different non-operating assumptions.
Q1organicgrowthlikelytodecelerate.Weanticipateconstantcurrency organic growth to decelerate to 3% Q1 from 5% Q4, below Descartes’ 4-quarter average of 6%. We expect COVID-19-related disruptions to global trade to weigh on transactional and non-recurring revenue (PS, license = 12%). Stronger demand for some of Descartes’ services such as trade content may help to offset some of the slowdown in transactional revenue.
Global trade sees material slowdown due to COVID-19 disruptions. ATA’s Truck Tonnage index (released on May 19) declined 12.2% Y/Y in April ( compared to 0.4% in March), the largest decrease in the index in the last 26 years. Air cargo tonne kilometers (CTKs) declined 15% Y/Y in March, compared to -9% in February, according to IATA. Global marine port operator DP World reported that gross container volumes declined 1.7% Y/Y Q1, below the 4-quarter average of -0.2%.
Q2 baseline may suggest actuals slightly below consensus. Our estimates call for constant currency organic growth to remain depressed at 4% Q2, below Descartes’ 4-quarter average of 6%. Based on this organic growth, we believe Descartes would provide Q2 baseline for $82.0MM revenue and $26.2MM adj. EBITDA, which would imply Q2 actuals at $86.9MM revenue and $33.3MM adj. EBITDA, below consensus ($87.9MM, $33.8MM, respectively). Every 100bps lower constant currency organic growth would equate to $0.8MM lower revenue Q2 and $0.3MM lower adj. EBITDA Q2.
Maintaining Outperform rating and $50.00 price target. We maintain our Outperform rating given Descartes’ history of creating shareholder value through acquisitions regardless of global trade volumes. Our $50.00 price target is based on 26x CY21e EV/EBITDA, below supply chain & fleet management peers (34x) despite similar FTM organic growth. Descartes has converted 84% of adj. EBITDA into FCF over the last five years.