achieved "solid" Q3/23 financial results, reported Nick Corcoran, equity analyst at Acumen Capital, in a November 10 research note. The business-to-business company provides digital and print-focused marketing and communications solutions.
"The Q3/23 results demonstrate that Data Communications is successfully executing its 'bigger and better' strategy," Corcoran wrote.
Attractive Investor Gain
Accordingly, Acumen reiterated its Buy recommendation and CA$6 per share price target on the Canadian company, currently priced at about CA$2.77 per share, noted Corcoran.
The difference between these prices represents a material potential return for investors of 117%.
Corcoran also noted that Data Communications is trading at a 3.4x multiple on a 2024 enterprise value:EBITDA basis versus the 5.2x peers average.
"We believe Data Communications will trade in line with the peer group as it realizes synergies from its acquisition of Moore Canada Corp. (MCC)," the analyst commented.
Strong Quarterly Performance
Corcoran reviewed Data Communications' financial results for Q3/23, the first full quarter after the MCC acquisition. He pointed out that post-merger, Data Communications garnered CA$18 million (CA$18M) of new business. Moving forward, management estimates annual organic growth will be about 5%.
Revenue in Q3/23 was CA$122.7M, "roughly in line" with Acumen and consensus forecasts of CA$125M and CA$124.5M, respectively.
Adjusted EBITDA came in at CA$11.8M, higher than Acumen's CA$10.3M estimate. Adjusted EBITDA did not encompass Data Communications' CA$0.2M of acquisition and integration costs, CA$7M of restructuring expenses, and fair value losses on financial liabilities.
The company's gross profit in Q3/23 was CA$30.3M, slightly below Acumen's projection of $31.3M.
Earnings per share was (CA$0.08) compared to Acumen and the Street's estimate of (CA$0.02).
"The variance was due to higher restructuring expenses (CA$7M actual versus CA$4.5M estimate)," explained Corcoran.
Net debt at the end of Q3/23 was $95.4M, down CA$126M from the amount after the acquisition closing.
Funds To Come
Data Communications management now expects near-term merger synergies, excluding revenue synergies, to be higher than originally anticipated and raised its estimate for 2024-2025 to CA$30−35M from CA$25−30M, Cororan reported. The team anticipates realizing about half of the total, or CA$17.5M worth, in 2024.
Also to come soon, are net proceeds of about CA$15M from the closing of the Fergus and Trenton facilities sales, noted the analyst. Added to the proceeds from the Oshawa facility sale, the total Data Communications will generate from all three real estate transactions will be about CA$38M, more than the CA$30M bridge loan.
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- [Data Communications Management Corp.] is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
- [Doresa Banning] wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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Disclosures for Acumen Capital, Data Communications Management Corp., November 10, 2023
This is an issuer-related publication.
Acumen Capital Partners has received compensation for investment banking and related services from the issuer in the past 12 months.
*Acumen has a pool for compensation purposes, which includes research analysts, investment banking personnel, sales people and institutional traders. Revenue in the pool includes trading commissions, advisory fees, new issue commissions and broker warrant proceeds. For U.S. persons only: This research report is a product of Acumen Capital Finance Partners Limited (“Acumen”), which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by Acumen only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Acumen has entered into an agreement with a U.S. registered broker-dealer. Transactions in securities discussed in this research report should be effected through a U.S. registered broker dealer.