Softchoice Corp.
(SFTC-T) C$20.50
Q4/F21 Preview: Expecting a Strong Finish to 2021
Event
Q4/F21 Results: Friday, March 4, 2022, before markets open.
Conference Call: 8:30 am ET (Dial-in: 1 888 664-6392 or (416) 764-8659). Impact: NEUTRAL
Solid Q4/F21 expected. We are forecasting Q4/F21 gross profit of $74.3mm (up 14% y/y; all organic) and Adj. EBITDA of $22.2mm, both slightly below consensus at $76.5mm and $23.3mm, respectively. Adj. EBITDA is expected to decline modestly from $26.0mm last year, primarily due to Softchoice receiving ~$10mm in CEWS funding in Q4 last year. We expect F2022 guidance to be maintained.
Positive industry tailwinds. We believe the Q4/C21 results by many of Softchoice's key technology vendor partners bode well for the company, including from its biggest partner Microsoft (details here). Meanwhile, there was continued strong growth from the other large cloud vendors, Amazon and Google, which saw their cloud businesses grow 40% y/y and 45% y/y, respectively (Microsoft Azure revenue grew 46% y/y). These growth rates are in-line with, or in Amazon's case, stronger than their respective growth rates over the last year. Accordingly, as one of the leading Hybrid Multi-Cloud providers, Softchoice is poised to continue (disproportionately) benefiting from the strong cloud migration activity, in our view.
Solid Q4 results from some North American peers. Several of Softchoice's (hardware-centric) North American peers have already reported Q4/C21 results including CDW (11% y/y growth in gross profit) and Insight (13% y/y growth in North American gross profit). In terms of read-throughs for Softchoice, CDW's net sales grew 33% y/y for U.S. Corporate customers, 31% y/y for U.S. small businesses, while Canadian net sales increased y/y in the high teens. Both companies indicated a continued acceleration in cloud migration and digital transformation activities.
Last week, Canadian peer Converge (CTS-T; HOLD; C$13 target) released preliminary Q4/F21 results (details here), with revenue and gross profits expected to increase ~73% and ~62% y/y, respectively, driven by M&A. On a gross revenue basis, organic growth was 9.6% for the year.
TD Investment Conclusion
We are maintaining our C$37.00 target price, which is based on 16x our F2023 Adj. EBITDA estimate.