Data Communications Management Corp. (DCM:TSX; DCMDF:OTCQX), one of Canada’s largest printing and marketing services companies, is expanding its digital services and growing its bottom line.
The company saw a reduction in orders during the COVID-19 pandemic, but now continues to gain momentum and posted an 23.4% increase in revenue for the second quarter of 2022 compared to Q2 2021, it announced Tuesday. It also saw a 29% increase in gross profit in that time to CA$20.4 million.
Analyst Noel Atkinson of Clarus Securities called the Q2 results “monster.”
“DCM achieved a spectacular quarter, driven by strong customer demand and the ability to start passing through some input cost increases to clients,” he wrote in an August 10, 2022 update note.
In 2021, the company launched its digital asset management (DAM) cloud solution, ASMBL, to manage corporate media files and other content. The technology has the potential to become a substantial contributor to DCM’s income as it is deployed to the company’s 2,500 corporate clients, Atkinson said.
Before the second-quarter results were released Tuesday, technical analyst Clive Maund said there was a “high probability of a significant rally once results are released, Data Communications Management is rated an immediate speculative buy.”
“DCM has decades of experience in handling digital assets and its enterprise client base is already comfortable with DCM doing that for them,” Atkinson wrote in another research note. “DCM’s new DAM offering will carry gross margin far above the corporate average and should be differentiated by being ‘bundled’ with DCM’s production capability—unlike pure-play cloud software competitors that lack such a moat.”
Atkinson reiterated his Buy rating for the stock and raised his target from CA$2.50 to CA$3.
Before the second-quarter results were released Tuesday, technical analyst Clive Maund said there was a “high probability of a significant rally once results are released, Data Communications Management is rated an immediate speculative buy.”
DCM has been in business for 60 years. It helps companies with branding, communications, and logistics, and provides customer loyalty programs, data and content management, location-specific marketing, labels and asset tracking, multimedia campaign management, and workflow management. Its clients are in many industries, including financial services, health care, emerging markets, retail, non-profits, energy, hospitality, and transportation.
Digital Platform Key to Future
The company continues to see momentum increase in its customer base as its clients recover from the pandemic, Atkinson wrote.
“Recovery in order volumes from the office/store segments hardest-hit during COVID (retail, financial services) should remain solid in Q2/22e – perhaps the first ‘post-COVID’ quarter in Canada, and then moderate to normalized levels,” he wrote.
About 95% of DCM’s revenues come from marketing and business communications, including personalized print, Chief Financial Officer James Lorimer told Streetwise Reports. But about 30% of that revenue is generated through its digital platform, which enables companies to order and run campaigns in the cloud.
“Our objective is to grow that from 30% today to 75% over the next five years,” Lorimer said. “Print is still going to be an important part (of our business). But digitally enabled workflows are really what we’re focusing on.”
What DCM does with print further differentiates it from other companies, Lorimer said. It helps clients develop more personalized campaigns targeting groups and even individuals.
“You’re not printing one magazine and sending it to millions,” Lorimer said. “You’re customizing direct mail. … It’s been a more personalized, customized material.”
Atkinson, the analyst with Clarus Securities, said the DAM platform is a key to the company’s future.
“The company consolidated capacity, cut costs, and is well-positioned to win new large clients with its DCM Flex on-demand platform,” he wrote. “We expect (year-over-year) revenue growth in 2022e and 2023e with modest improvements in gross margin each year.”
DCM Directors and officers hold 31.1% of the company, and employees own close to 4 percent through an employee share program. It has a market cap of CAS$57.28 million with 44.06 million shares outstanding. It trades in 52-week range of CA$1.45 and CA$0.93.
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