Impact: SLIGHTLY POSITIVE
Strong setup for 2023. If demand remains strong, we could see SaaS revenue growth exceeding 30% for the first time in 2023, supporting management's mid-term target of growing SaaS revenue by at least 30%. 2023 EBITDA margin is expected to be a trough level as investments are made to go after the active market. Operating leverage is then expected to take margins higher thereafter to hit 25%+ EBITDA margin in 2-4 years, which we believe is achievable, especially as the subscription term license (STL) cycle strengthens again in 2025. Given the company's history of achieving 30%+ EBITDA margin, we believe their long-term goal to reach EBITDA margin of 30%-35% is reasonable.
New verticals, services, and deployment models. Beyond the strong demand for supply chain modernization, we believe there are additional opportunities to help the company reach its mid- and long-term targets. The company continues to look to expand into new verticals, such as energy, and is expected to break into the large retail vertical with a "world-dominating" sub-sector. We believe having the Rubikloud assets integrated helps with the retail space. We also note that Blue Yonder was strong in retail and may have experienced disruptions following the Panasonic acquisition, which could be an opportunity for Kinaxis. The MPO acquisition also brings additional capabilities that Kinaxis can grow into by cross-selling. And we are very optimistic of the public cloud opportunity helping to scale the company and achieve its margin targets, while also improving cash flow.
Expect accelerating growth and expanding margin in 2024. We have made small adjustments to our 2023 revenue forecast, but have lowered our EBITDA margin assumptions given management's plans to continue investing for organic growth. We are also introducing our 2024 estimates where we expect the company to exceed 30% SaaS growth and for EBITDA margin to expand off the 2023 level, largely due to operating leverage.
TD Investment Conclusion
Maintaining BUY rating, increasing target price to C$210.00. We are attracted to the company's growth and margin profile, which we believe will continue to improve.