Real Matters Inc T.REAL

TD Notes

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Increasing Target Prices TD Investment Conclusion

Our top picks are REAL, KXS, GIB.A, ENGH, and DCBO. We believe that our top picks are companies that are well-positioned to benefit from the current environment. Unique to our coverage universe, REAL is set up to have a multi-year growth opportunity due to the low interest rate environment in the U.S. KXS, GIB.A, ENGH, and DCBO are vendors that we believe enterprises will prioritize to prepare for the new normal after the pandemic. We also note that our preferred picks are well- capitalized and well-positioned to execute on growth opportunities, whether they be organic or through acquisitions.

We are revising some of our target prices and estimates given the recent rally.

Most of our top picks have rallied the strongest in recent months causing our target returns to become misaligned with our ratings. We have increased our target price for REAL, KXS, ENGH, DCBO, DSGX, and SWIR largely from expanding our target multiples and making slight estimate changes to SWIR. We have not made any ratings changes.

Valuations have been increasing. Our coverage universe has rallied ~29.0% since the beginning of May. The S&P 500 Information Technology Index increased by 15.6% and the NASDAQ Composite has increased by 16.1%, both ahead of the S&P 500's 8.6% rally. Multiples have also continued to increase. The S&P 500 Information Technology Index's NTM EV/EBITDA has expanded by ~2x, while the NASDAQ Composite's NTM EV/EBITDA has expanded by ~3x. We believe these broad market multiple expansions should also reflect positively on our coverage universe. Since the widespread lockdown started in March, some companies in our coverage have benefited from the current environment, while some have faced headwinds. We believe that companies in our coverage universe that offer virtual, cybersecurity, and/ or critical modernization capabilities to enterprises will continue to perform well.