RBC Dominion Securities analyst Paul Treiber expects few surprises from first-quarter earnings season in Canada’s technology sector, predicting most companies will match the Street’s expectations and reiterated their annual guidance. “Similarly, our U.S. Software team expects largely in-line March quarter results, but sees an upward bias to estimates through 2024 on stabilizing macros,” he said in a report released Monday. “For stocks in our coverage that are dependent on consumer spending, we believe consumer spending remained healthy through March. For those dependent on enterprise spending, we believe the environment remains similar to previous quarters, with sustained elongated sales cycles as a headwind to near-term growth.
“Canadian tech stocks have slightly underperformed broader markets Q1 (S&P/TSX Info Tech up 5 per cent Q1 vs. S&P/TSX Composite up 6 per cent and S&P 500 Info Tech up 12.5 per cent). While increasing interest rates are a headwind to valuation multiples, a large number of Canadian tech stocks trade below historical averages and at larger than historical discounts to peers. We believe improving growth and profitability through 2024 would help sustain valuation multiple expansion.”
Mr. Treiber warns the quarter might not be a catalyst for Kinaxis Inc. ( “outperform” and $200 target) and Open Text Corp. ( “outperform” and US$53 target).
“For Kinaxis, we believe SaaS growth is likely to slow Q1, and Q1 total revenue may be slightly short of consensus,” he said. “However, we expect Kinaxis to reiterate FY24 guidance and we see growth re-accelerating through FY24. For OpenText, March is typically a seasonally soft quarter for the company. We expect OpenText to reiterate annual guidance. On both stocks, we see the June quarter as a more likely catalyst, as Kinaxis is likely to see stronger SaaS growth, while OpenText’s June quarter is seasonally strong, and we expect the company to provide healthy FY25 guidance and may announce a dividend increase and the commencement of share buybacks.”