Data Communications Management Corp.'s (DCM:TSX; DCMDF:OTCQX) Q3/23 financial results show the Canadian marketing and business communication solutions firm continues to benefit from its Q2/23 acquisition of Moore Canada Corp. (MCC), reported eResearch analyst Christopher Thompson in a Nov. 13 quarterly update.
"We maintain that this transaction significantly bolsters Data Communications' growth potential and capabilities, offering economies of scale along with an expanded range of products, services and technological advancements," Thompson wrote.
152% return possible
After incorporating the Q3/23 numbers and further anticipated synergies resulting from the merger, eResearch maintained its target price on Data Communications of CA$6.90 per share, noted Thompson. This target implies a significant potential return for investors, of 152%, given the company is now about CA$2.74 per share.
At the current price, Thompson pointed out, Data Communicationsis trading at a discount.
"[We]highlight the potential for Data Communications' share price appreciation," the analyst added. "As the company shifts to more tech-enabled solutions, we expect its valuation multiples to increase."
DCM remains a Buy.
Revenue momentum continues
In his report, Thompson presented DCM's Q3/23 financial results, highlighting revenue and EBITDA.
As for revenue, it was CA$122.7 million (CA$122.7M) and up 93.6% from CA$63.4M in Q3/22, making it DCM's eighth consecutive quarter of year-over-year (YOY) revenue growth.
"The substantial growth primarily reflects the additional business acquired through the MCC acquisition," Thompson wrote.
Revenue, though, missed eResearch's estimate of CA$129.1M due to seasonality.
Data Communications' adjusted EBITDA in Q3/23 was CA$11.8M, up 28.2% YOY from CA$9.2M. Gross profit was CA$30.3M, up 52.4% YOY from CA$19.9M.
As for costs, Q3/23 sales, general and administrative expense was CA$25.1M. This was 83.5% higher YOY but only 9% higher quarter over quarter. Other Q3/23 expenditures included CA$7M in restructuring costs, CA$0.2M in one-time acquisition and integration expenses, net fair value losses on financial liabilities and higher interest expenses. Also, Data Communications extended the lease on the Brampton facility for 15 years and the lease on the Toronto facility for 10 years.
Overall in Q3/23, Data Communications reported a CA$4.2M loss versus a CA$2.8M profit a year earlier.
Paying down debt remains priority
As for the balance sheet at Q3/23's end, Thompson reported, Data Communications had CA$22.3M in cash and CA$115.9M in debt, excluding lease liabilities.
"Data Communications reiterated its focus on debt reduction as a key strategic priority," reported Thompson.
The Ontario-headquartered company intends to apply the net proceeds, an estimated CA$15.2M, from the sale of its Fergus and Trenton facilities, transactions for which are in process, toward its debt.
"We estimate Data Communications could generate over CA$60M of EBITDA in 2024, which could be allocated towards debt reduction, dividend distribution or exploring further acquisition opportunities," added Thompson.
Greater merger benefits expected
The analyst also reported that Data Communications' integration of MCC is "progressing ahead of schedule and above targets." As such, Data Communications increased its merger synergies estimate for the next 18−24 months to CA$30−35M from CA$25−30M.
Of that amount, the company expects to realize about CA$17.5M of these savings in 2024 as it keeps pursuing efficiencies in the areas of operations, organization, procurement and revenue growth.
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