Q2/23 financial results were notable for a 75% year-over-year (YOY) increase in revenue, attributed to its acquisition of Moore Canada Corp. (MCC), reported Chris Thompson, eResearch's director of equity research, in an August 17 update note.
"The combined businesses achieved growth through expanded revenue with existing clients, successful acquisition of new clients, and ongoing efforts to mitigate the impact of raw material cost increases by passing them on to the customers," Thompson wrote.
Attractive 114% Return
The Canadian marketing and business communication solutions provider offers investors a significant potential return of 114%, noted Thompson. It is trading now at about CA$3.22 per share, whereas eResearch's target price on it is CA$6.90 per share.
Data Communications Management is a Buy.
Growth Record Maintained
Thompson reviewed Data Communications Management's financial results from Q2/23, the company's seventh consecutive quarter of year-over-year growth.
Revenue was a beat, coming in CA$119 million (CA$119M) versus eResearch's CA$113.2M forecast. Also, Q2/23 revenue was 74.7% higher than Q2/22's of CA$68.1M.
"Data Communications Management reported that it believes it can still achieve its targeted organic annual revenue growth rate of 5%," wrote Thompson.
Gross profit in Q2/23 was CA$32M, up 56.7% YOY. Gross margin in Q2/23, however, was 26.9%, down 3.1% YOY but consistent with eResearch's 27% estimate.
The tech solutions firm aims to achieve gross margins of greater than 30% in the upcoming quarters. Following the closing of the MCC acquisition in late April, Data Communications Management began initiatives to reach this target through synergies and greater efficiencies in organization, operations, procurement, and revenue, Thompson noted.
Adjusted EBITDA in Q2/23 was CA$13.8M, up 45.8% YOY from CA$9.5M and partly due to the MCC acquisition.
As far as costs, Q2/23 sales, general and administrative expenses were CA$23M, up from CA$18.8M in Q1/23 and up from CA$13.8M in Q2/22. Data Communications Management aims to achieve savings from synergies in the CA$25−30M range over the next 18−24 months and has already realized CA$4.2M in this regard.
Overall, for Q2/23, Data Communications Management reported a CA$2.9M net loss, whereas last year, at this time, it had achieved a net profit of CA$3.8M. Similarly, Q2/23 earnings per share was (CA$0.06) compared to a CA$0.09 gain in Q2/22.
Review of Balance Sheet
In May of Q2/23, the company generated CA$26.1M of gross proceeds from a private placement of common shares offering, reported Thompson.
The following month, it yielded CA$24.1M of gross proceeds from the sale and leaseback of its warehouse in Oshawa, Ontario.
At Q2/23's end, Data Communications Management had CA$21M in cash and CA$112.7M in debt after having paid it down by CA$60.4M.
Want to be the first to know about interesting Technology investment ideas? Sign up to receive the FREE Streetwise Reports' newsletter.
- 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.
For additional disclosures, please click here.
Disclosures for eResearch, Data Communications Management Corp., August 17, 2023
eResearch Intellectual Property: No representations, express or implied, are made by eResearch as to the accuracy, completeness, or correctness of the comments made in this report. This report is not an offer to sell or a solicitation to buy any security of the Company. Neither eResearch nor any person employed by eResearch accepts any liability whatsoever for any direct or indirect loss resulting from any use of this report or the information it contains. This report may not be reproduced, distributed, or published without the express permission of eResearch.
ANALYST ACCREDITATION eResearch Analyst on this Report: Chris Thompson CFA, MBA, P.Eng. Analyst Affirmation: I, Chris Thompson, hereby state that, at the time of issuance of this research report, I do not own common shares, share options, or share warrants of DATA Communications Management Corp. (TSX: DCM).
eRESEARCH DISCLOSURE STATEMENT eResearch is engaged solely in the provision of equity research to the investment community. eResearch provides published research and analysis to its Subscribers on its website (www.eresearch.com), and to the general investing public through its extensive electronic distribution network and newswire agencies. eResearch makes all reasonable efforts to distribute research material simultaneously to all of its Subscribers. eResearch does not manage money or trade with the general public, provides full disclosure of all fee arrangements, and adheres to the strict application of its Best Practices Guidelines. eResearch accepts fees from the companies it researches (the “Covered Companies”) and from financial institutions or other third parties. The purpose of this policy is to defray the cost of researching small and medium-capitalization stocks which otherwise receive little or no research coverage. DATA Communications Management Corp. paid eResearch a fee to have it conduct research and publish reports on the Company for one year.
To ensure complete independence and editorial control over its research, eResearch follows certain business practices and compliance procedures. For instance, fees from Covered Companies are due and payable before the research starts. Management of the Covered Companies is sent copies, in draft form without a Recommendation or a Target Price, of the Initiating Report and the Update Report before publication to ensure our facts are correct, that we have not misrepresented anything, and have not included any non-public, confidential information. At no time is management entitled to comment on issues of judgment, including Analyst opinions, viewpoints, or recommendations. All research reports must be approved, before publication, by eResearch’s Director of Research, who is a Chartered Financial Analyst (CFA). All Analysts are required to sign a contract with eResearch before engagement and agree to adhere at all times to the CFA Institute Code of Ethics and Standards of Professional Conduct. eResearch Analysts are compensated on a per-report, per-company basis and not based on his/her recommendations. Analysts are not allowed to accept any fees or other considerations from the companies they cover for eResearch. Officers, analysts, and directors of eResearch are allowed to trade in shares, warrants, convertible securities, or options of any of the Covered Companies only under strict, specified conditions, which restrict trading 30 days before and after a Research Report is published.