Decisive Dividend Corp.’s “winning, repeatable M&A playbook [is] proving to be a well-oiled machine,” according to Echelon Partners analyst Mike Stevens.
Touting the Kelowna, B.C.-based acquisition-oriented company’s “supreme historical outperformance,” he initiated coverage with a “buy” recommendation.
“While recognizing that new investors won’t be rewarded for past performance, we view Decisive’s track record of delivering immense shareholder value over eight-plus years as validation of the Company’s stellar M&A strategy and operational competency,” said Mr. Stevens. “Early investors holding shares since the Company’s qualifying transaction in 2015 have enjoyed total returns in excess of 410 per cent (capital gains + cash dividends), compared to the S&P/TSX Total Return and Small Cap indices netting gains of just 72 per cent and 48 per cent, respectively, across the same period.”
The analyst applauded Decisive’s “disciplined buy, build, and hold” M&A strategy, which has seen it acquire almost $97-million in enterprise value (EV) across 11 manufacturing businesses “at immediately accretive acquisition multiples (average of 3.9 times EV/EBITDA) before seeking to reinvigorate growth through strategic investments.”
“The Company’s founder-friendly core tenets and access to capital have favourably positioned Decisive as an attractive acquirer,” he said. “This, coupled with surging macro tailwinds, as 56 per cent of Canada’s baby boomer business owners plan to exit over the next five years (representing $1.5-trillion-plusworth of assets) (CFIB), helps forge a rich pipeline of opportunities to flow for many years to come. With our headline PT derived from a strictly organic forecast outlook (i.e., assuming no further acquisitions), our more plausible M&A Scenarios point to current per share valuations of $12.63/$14.53 across our Base/Bull cases, implying considerable upside beyond our [price target].”
Also seeing “sustainable” dividend growth, Mr. Stevens set a target of $10.75, which implies a total return upside of over 45 per cent from its current price. The average target on the Street is $10.63.
“In the wake of a COVID-19-depressed 2020, the Company has put together a string of robust year-over-year organic growth rates – 29 per cent/30 per cent/13 per cent across 2021/2022/H123 – translating into substantial free cash flow (FCF) generation and dividend growth,” he said. “With two hikes already implemented in 2023, Decisive’s dividend now sits 33 per cent higher with plenty of runway for future growth given the Company’s 15-per-cent organic growth target, modest payout ratio, and largely untapped potential synergies.”