Descartes Systems Group Inc DSGX

Primary Symbol: T.DSG

Technology Software - Application

The Descartes Systems Group Inc. is focused on logistics and supply chain management business processes. It provides on-demand, software-as-a-service (SaaS) solutions focused on improving the security and sustainability of logistics-intensive businesses. The Company allows customers to use its modular, SaaS solutions to route, track and help improve the safety, compliance of delivery resources; plan, allocate and execute shipments; rate, audit and pay transportation invoices; access global trade data; file customs and security documents for imports and exports; and complete other logistics processes by participating in the multimodal logistics community. Its solutions include cloud-based and consist of B2B service connectivity and messaging, broker and forwarder enterprise systems, global trade intelligence, regulatory compliance, e-commerce shipping, transportation management and routing. It also provides customs declaration software for logistics services providers and shippers.

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Descartes Systems Group Inc

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Post by retiredcfon Dec 01, 2020 8:59am

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Post# 32008091

RBC Preview

Current and upside scenario targets are US$67 and US$80. GLTA

November 30, 2020

The Descartes Systems Group Inc.

Q3 preview: Trade and commerce recovery point to improving organic growth

Our view: We believe that Descartes may report Q3 above consensus estimates, given the recovery in global trade and commerce. The company’s Q4 outlook may exceed consensus revenue estimates on the $19MM ShipTrack acquisition. We believe the probability of a sustained recovery in trade and commerce is increasing, which positions Descartes for improved organic growth in 2021E. Maintain Outperform, $67.00 price target.

Key points:

Potential upside to Q3 consensus estimates. Descartes will report Q3/FY21 results (Oct-qtr) on December 2, after market close. In light of the recovery in the global trade environment and commerce, we believe Descartes may report incrementally improved organic growth and upside to our Q3 estimates and consensus. We believe our Q3 estimates are conservative; specifically, our model calls for Q3 revenue to rise 3% Y/Y to $85.4MM, compared to consensus at $86.1MM. Similarly, our adj. EBITDA estimate of $34.3MM (+9% Y/Y) appears conservative vs. consensus at $34.8MM. For GAAP EPS, our estimate for $0.14 matches consensus at $0.14.
Global trade and commerce recovery. Based on the latest data from IATA, global air cargo volumes improved for the 6th consecutive month in September to -8% Y/Y from -26% Y/Y in April. Seasonally adjusted U.S store-based retail sales averaged +2% for the 3 months between August to October, up from -4% in the previous 3-month period. Additionally, non-store retail sales (i.e., eCommerce) are up 28% for the quarter ended October, compared to 25% in the previous quarter.
Organic growth may show incremental improvement. Our model calls for 0% constant currency organic growth Q3, which is flat with Q2 (0%) and down from the ~6% quarterly average in FY20. In light of the recovery in global trade and commerce, we believe Q3 organic growth may strengthen compared to Q2 and upside to our estimates is possible.
Q4 baseline may suggest upside to consensus revenue estimates. Descartes’ $19MM acquisition of ShipTrack closed on November 6 and is not reflected in consensus estimates. We estimate ShipTrack may add ~$1MM revenue and ~$0.3MM adj. EBITDA Q4. Based on constant currency organic growth improving to 2% Q4 and contribution from ShipTrack, Descartes may provide Q4 baseline of $84.7MM revenue and $28.1MM adj. EBITDA. This baseline would imply actual revenue of $89.9MM and adj. EBITDA of $35.8MM, compared to consensus at $88.5MM revenue and $36.0MM adj. EBITDA.
Maintain Outperform, $67.00 price target. Our $67.00 price target is based on 31x CY22E EV/EBITDA, justified below supply chain & fleet management peers (47x) given Descartes’ historical discount to peers. Descartes has converted 84% of adj. EBITDA into FCF over the last 5 years.