Co. Successfully Pursuing 'Bigger and Better' Strategy

Data Communications Management Corp. (DCM:TSX; DCMDF:OTCQX) paid off the balance of its CA$30 million (CA$30M) term loan, and its solid Q3/23 financial results reflected eight consecutive quarters of year-over-year (YOY) revenue growth.

"The Q3/23 results demonstrate that DCM is successfully executing its 'bigger and better' strategy," Acumen Capital Analyst Nick Corcoran said in reference to Data Communications' acquisition of Moore Canada Corp. (MCC) in the previous quarter. "The integration of MCC is progressing well and ahead of target."

Noel Atkinson with Clarus Securities commented, "There is also increasing evidence of DCM building an economic moat within the Canadian commercial printing sector after the MCC acquisition."

Corcoran, Atkinson, and Chris Thompson with eResearch, each rated the Toronto, Ontario-based firm Buy in their respective reports on its Q3/23 performance. Also, according to TipRanks, DCM is a Buy based on its technical indicators.

Powered by a handful of digital platforms, Data Communications provides marketing, strategy, and creative services as well as management of workflow, digital assets, and print and communications to businesses in North America.

Its client base is large and spans numerous sectors, including energy, financial services, retail, healthcare, and government.

Corcoran, Atkinson, and Chris Thompson with eResearch, each rated the Toronto, Ontario-based firm Buy in their respective reports on its Q3/23 performance.

"[DCM's] technology-enabled content and workflow management capabilities solve the complex branding, communications, logistics, and regulatory requirements of leading enterprises so its customers can accomplish more in less time," Thompson explained.

The funds to pay off the term loan came from Data Communications' sale of its Fergus, Ontario production facility, which generated CA$6.75M in gross proceeds, noted a news release.

In Q3/23, the company's revenue and gross profit were up YOY by 96% and 52%, respectively, reflecting continued momentum, according to the company's Q3/23 Report to Shareholders presentation. Since acquiring MCC in Q2/23, DCM won CA$18M of new business and achieved nearly CA$25M worth of cost savings from its merger integration.

"The substantial growth primarily reflects the additional business acquired through the MCC acquisition," Thompson said.

More Earnings Growth, Cost Synergies to Come

Data Communications is growing, and that momentum is expected to continue, added Thompson, and the share price offers upside. Management has committed to targeting 5% of growth per year over the medium term.

"We estimate DCM could generate over CA$60M of EBITDA in 2024," Thompson said.

Atkinson highlighted that Data Communications, over this year and into early next, due to merger synergies, expects to realize additional cost savings of CA$30−35M, estimate management recently increased from CA$25−30M.

"We estimate DCM could generate over CA$60M of EBITDA in 2024," Thompson said.

"We continue to expect DCM to become a cash flow machine in 2025 once the cost synergies are realized," he said.

Further, continued Atkinson, what investors can expect from Data Communications' shares is "exposure to solid revenue growth, one of the largest and most diversified corporate client bases in Canada, some inflation protection via contractually permitted input cost pass-throughs and further potential torque if the company gets traction with new high-margin, subscription-based enterprise cloud offerings now entering the market."

Corcoran pointed out the company is trading at a discount to its peers and noted the gap should shrink as it continues realizing acquisition benefits.

In Robust and Growing Sectors

Data Communications' business falls into at least two sectors, which, according to research-based reports, are growing rapidly: marketing technology, or martech, and digital asset management, or DAM.

The global martech industry is forecasted to increase in value by 21% to US$489 billion (US$489B) this year alone, from US$403B in 2023, according to The Business Research Co.'s "Marketing Technology Global Market Report 2024." The factors contributing to this future expansion, the report notes, are digital transformation, artificial intelligence, social media proliferation, automation and personalization, the rise of digital marketing, and advancements in managing customer relationships.

Between now and 2028, the report indicates, martech is expected to grow 148% and hit US$1 trillion in value.

As for the DAM market, it is projected to reach US$5.5B in value in 2031, reflecting a 190% increase from its current value of US$1.9B, data in Precision Reports' "Global Digital Asset Management Market Report 2024" show.

The Catalysts: Realization of Synergy Benefits

Data Communications has implemented various strategies to capitalize on the synergies born out of its MCC acquisition, and it expects to realize several of these, in the form of savings, this year, Thompson said.

Management estimated that this year it will accrue more than half, or about CA$17.5M, of its total CA$30−35M synergy estimate for the next 18−24 months, reported Thompson. The CA$17.5M will comprise CA$9M in annualized sales and general and administrative expense savings due to cost-lowering initiatives; about CA$4.75M in annualized procurement savings resulting from centralizing the company's purchasing operation; and about CA$3.75M in operational savings due to reductions in the workforce and work sites.

As part of its facilities consolidation plan, Data Communications is selling its Trenton production plant, the closing of which is imminent and expected to generate about CA$8M. Additional consolidation efforts are in the works. 

Data Communications is a company on a robust growth path, the business of which falls into two sectors forecasted to thrive over the next five or so years. DCM is currently undervalued, according to the experts, has an upside, and offers investors compelling return potential. For this reason, Analysts Cocoran, Thompson, and Atkinson recommended it as a Buy.

Ownership and Share Structure

According to Reuters, insiders own 32% of Data Communications Management. The Top 5 insider owners are KST Industries Inc. with 9.36%, Director Michael Sifton with 9.16%, Board Vice Chairman Greg Cochrane with 6.32%, Director J.R. Ward with 4.44%, and Chief Executive Officer Richard Kellam with 1.4%.

Institutions, six in all, own 6.71% of the company's shares. Of these, the top holders are CI Global Asset Management with 2.73% and BMO Asset Management with 2.19%.

Retail ownership accounts for the remaining 61.3% interest.  

Data Communications has 55 million (55M) shares outstanding and 37.5M free float traded shares. Its market cap is CA$147M and its 52-week trading range is between CA$1.28 and CA$3.81 per share.

Important Disclosures:

1. [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.
2. [Doresa Banning] wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
3. The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

For additional disclosures, please click here.