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 Chris Thompson in a November 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 at CA$2.74 per share.
At the current price, Thompson pointed out, Data Communications is 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 expenses were 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 continues to pursue efficiencies in the areas of operations, organization, procurement, and revenue growth.
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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 eResearch, Data Communications Management Corp., November 13. 2023
eRESEARCH CORPORATION eResearch was established in 2000 as Canada's first equity issuer-sponsored research organization. As a primary source for professional investment research, our Subscribers benefit by having written research on a variety of under-covered companies. We also provide unsponsored research reports on middle and larger-cap companies, using a combination of fundamental and technical analysis. We complement our corporate research coverage with a diversified selection of informative research publications from a wide variety of investment professionals. We provide our professional investment research and analysis directly to our extensive subscriber network of discerning investors, and electronically through our website: www.eresearch.com
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.
