DH Corp.
Q4 Preview: Focus On Fundtech Growth
What's The Event
DH will report Q4 results on Tuesday, February 23 after markets close and management will host a conference call on Wednesday, February 24 at 10:00 a.m. ET (dial-in 888-231-8191). We expect revenue of $426 mln. and adjusted EPS of $0.61 versus consensus of $430 mln. and $0.59, respectively. We estimate 29.9% adjusted EBITDA margins and a 8.3% FX-related revenue tailwind.
Implications
We believe investor focus will be on growth in GTBS (Fundtech) and expect management to provide Y/Y backlog growth (which we expect to be solid given commentary in Q3 that backlog was at record highs) and comments around organic growth (we believe the market is growing in the high single digits). With Q4 results, we will also be looking for an update on the base DH business and the outcome of the CSLP RFP. Key wins announced in the quarter include a contract with CooPACA for core processing and integrated enterprise suite and solid uptake in messaging solutions, up 25% Y/Y in 2015.
Looking into F2016, we see potential cross-sell opportunities with Canadian and major U.S. banks, geographic expansion into Europe, as well as traction in payments with modernization efforts and new fintech offerings. During the quarter, DH announced a partnership with Ripple to deliver innovative payment capabilities, including distributed ledger technology using blockchain.
We continue to like DH's positioning in the evolving fintech landscape, with the company using its stable Canadian operations to fund higher-growth opportunities in the U.S. In the near term, we expect cash will be used for debt repayment, but in the longer term we expect that DH will continue to consolidate and add additional products that further its cross-selling abilities.
Retain SO rating and $38 PT