Data Communications Management Corp. (DCM:TSX; DCMDF:OTCQX) posted a 93% revenue increase in Q3 2023 driven by its transformative acquisition of Moore Canada, noted eResearch Director of Research Chris Thompson in a November 13 research report.
The analyst maintained a Buy rating and a CA$6.90 price target on Data Communications.
Acquisition Drives Growth
DCM generated CA$122.7 million in Q3 revenue, beating the analyst's CA$129.1 million forecast, with the increase attributed to the Moore Canada Corp. (MCC) deal completed in Q2 2023.
According to Thompson, the merger "significantly bolsters DCM's growth potential and capabilities" by expanding products, services, and technology.
Synergy Target Raised
DCM now expects CA$30-35 million in cost synergies over the next 18-24 months from the acquisition, up from CA$25-30 million previously.
The company anticipates CA$17.5 million in annualized savings starting in 2024. Key areas of integration focus include operations, organizational structure, procurement, and revenue growth.
Improving Margins and Paying Down Debt
The analyst believes restructuring efforts and the shift toward higher-margin digital services can boost DCM's gross margin to 29% by 2028.
DCM is also prioritizing debt reduction, with proceeds from the sale of two facilities helping to cut debt.
Significant Upside for Undervalued Stock
eResearch's CA$6.90 price target on DATA Communications implies over 100% upside potential. The firm's valuation is based on 2023 EV/EBITDA and EV/Revenue multiples of 8x and 1x, respectively.
The analyst sees the stock as undervalued based on transformative benefits from the Moore Canada acquisition, including cost savings, cross-selling opportunities, and scale.
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Important Disclosures:
- 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.
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Disclosures for eResearch, Data Communications Management Corp., November 13, 2023
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).
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DATA Communications Management Corp. paid eResearch a fee to have it conduct research and publish reports on the Company for one year.
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