Data Communications Management Corp. (DCM:TSX; DCMDF:OTCQX) achieved "solid" Q3/23 financial results, reported Nick Corcoran, equity analyst at Acumen Capital, in a November 10 research note. The business-to-business company provides digital and print-focused marketing and communications solutions.
"The Q3/23 results demonstrate that Data Communications is successfully executing its 'bigger and better' strategy," Corcoran wrote.
Attractive Investor Gain
Accordingly, Acumen reiterated its Buy recommendation and CA$6 per share price target on the Canadian company, currently priced at about CA$2.77 per share, noted Corcoran.
The difference between these prices represents a material potential return for investors of 117%.
Corcoran also noted that Data Communications is trading at a 3.4x multiple on a 2024 enterprise value:EBITDA basis versus the 5.2x peers average.
"We believe Data Communications will trade in line with the peer group as it realizes synergies from its acquisition of Moore Canada Corp. (MCC)," the analyst commented.
Strong Quarterly Performance
Corcoran reviewed Data Communications' financial results for Q3/23, the first full quarter after the MCC acquisition. He pointed out that post-merger, Data Communications garnered CA$18 million (CA$18M) of new business. Moving forward, management estimates annual organic growth will be about 5%.
Revenue in Q3/23 was CA$122.7M, "roughly in line" with Acumen and consensus forecasts of CA$125M and CA$124.5M, respectively.
Adjusted EBITDA came in at CA$11.8M, higher than Acumen's CA$10.3M estimate. Adjusted EBITDA did not encompass Data Communications' CA$0.2M of acquisition and integration costs, CA$7M of restructuring expenses, and fair value losses on financial liabilities.
The company's gross profit in Q3/23 was CA$30.3M, slightly below Acumen's projection of $31.3M.
Earnings per share was (CA$0.08) compared to Acumen and the Street's estimate of (CA$0.02).
"The variance was due to higher restructuring expenses (CA$7M actual versus CA$4.5M estimate)," explained Corcoran.
Net debt at the end of Q3/23 was $95.4M, down CA$126M from the amount after the acquisition closing.
Funds To Come
Data Communications management now expects near-term merger synergies, excluding revenue synergies, to be higher than originally anticipated and raised its estimate for 2024-2025 to CA$30−35M from CA$25−30M, Cororan reported. The team anticipates realizing about half of the total, or CA$17.5M worth, in 2024.
Also to come soon, are net proceeds of about CA$15M from the closing of the Fergus and Trenton facilities sales, noted the analyst. Added to the proceeds from the Oshawa facility sale, the total Data Communications will generate from all three real estate transactions will be about CA$38M, more than the CA$30M bridge loan.
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Disclosures for Acumen Capital, Data Communications Management Corp., November 10, 2023
This is an issuer-related publication.
Acumen Capital Partners has received compensation for investment banking and related services from the issuer in the past 12 months.
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