TSX:DSG - Post Discussion
Post by
retiredcf on Sep 10, 2020 8:14am
TD Upgrade
Descartes Systems Group Inc.
(DSGX-Q, DSG-T) US$58.08 | C$76.50
Q2/F21 Results: Improving Environment
Event
Descartes reported Q2/F21 results last night.
Impact: SLIGHTLY POSITIVE
Slight beat. Revenue of $84.0mm was above our $79.7mm estimate and slightly above consensus at $82.1mm. The beat relative to our estimates came from the Services segment, where revenue of $75.3mm was 6.2% above our $70.8mm estimate. We believe this signals that the macro backdrop is improving, mirroring what we have seen from manufacturing companies and from economic metrics. EBITDA of $34.0mm, or 40.5% EBITDA margin, was slightly ahead of expectations of ~$32.5mm. Management reiterated its target to grow EBITDA by 10-15%. It is already on track to reach this goal, with EBITDA up 13.8% y/y in H1/F21.
Saw improvement throughout the quarter. Management saw revenue trough in April as the global economy shut down in response to the pandemic. Although May experienced some sequential improvement, June and July started seeing the recovery accelerate. Revenue in July was better than management's expectations. Areas where Descartes saw strength were in e-commerce, food and essential goods, and in real-time tracking solutions. Air cargo was particularly weak, given that fewer passenger flights are limiting cargo supply, and remains slow to return. Shipments to shopping malls, and shipments of commodities and automotive-related goods were also weak as malls closed and automotive manufacturing was suspended; these are all recovering now. Although volumes are not back to pre-pandemic levels, we are encouraged by Descartes' diverse exposure helping to deliver a solid quarter.
M&A environment is very active, but valuations have increased. Management noted that the M&A environment is very active as more companies look to sell following the strong valuation expansions. Companies doing well during the pandemic are asking for a high premium. Management sounds confident in its ability to continue acquiring accretive assets and remain disciplined on valuation. With $81.9mm of cash and access to additional capital from an untapped $350mm and $1bln shelf, we believe that Descartes is well-capitalized to make additional acquisitions.
TD Investment Conclusion
We are maintaining our BUY rating and increasing our target price to US$67.00.
An improving macro backdrop, strong execution, and solid balance sheet leave us favourable on the name.
Be the first to comment on this post