National Bank Given the heightened volatility in the Canadian technology sector, National Bank Financial analyst Richard Tse and Jon Shao emphasize there is “a lot is riding on earnings season.”
“The reality is that the entire group will be drawn in by what happens with the megacap (largely U.S.) tech names that begin reporting over the next few weeks,” they said.
“One datapoint we thought important to highlight again (from our Year Ahead) relates to estimate revisions. While much of the pullback in growth and Tech specifically has been caused by rates and inflation, another quiet contributor has been moderating estimate revisions in the S&P Tech Index. The question is whether these expectations are too conservative — or are they resembling closer to reality (of potentially decelerating growth). It’s likely a little of both. Whatever the case may be, the reality is that expectations have been flattening (below) which is typically not ideal for this group — we obviously saw the impact of that this past Friday.”
In a research report released Monday, the analysts updated their financial projections for both the fourth quarter of 2021 and full-year 2022, reaffirming their view that the sector offers “outsized relative growth long term with numerous themes that are just starting to scale.”
“As such, we believe the pullbacks are creating opportunities to wade into those themes,” they said. “That said, we are not oblivious to the underlying short-term environment which now appears will be more sustained through the early part of 2022 – that has us re-rating some of our names.
“In the short-term, we continue to think investors would be best positioned in CGI, Kinaxis, Nuvei, Magnet Forensics and TELUS International.”
The analysts made a series of target price reductions to stocks in their coverage universe. Those changes are:
MDF Commerce Inc. ( “sector perform”) to $6 from $8. Average: $10.50.
Mr. Tse: “We see a balanced risk-reward profile. We acknowledge the Company has the financial flexibility to execute an ambitious growth strategy, and for that reason, we believe there’s potential option value in the name.”