eResearch is pleased to publish an Update Equity Research Report on DATA Communications Management Corp. (TSX: DCM | OTC: DCMDF).
We are maintaining a Buy rating and a one-year price target of $6.90.
You can download our 14-page Equity Research Report by clicking on the following link: eR-DCM-2023_08_17_UR-2023-Q2_FINAL
DCM is a Canadian-based provider of marketing and business communication solutions to companies in North America. Its 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. Its services include printing, data & content management, labels & asset tracking, location-specific marketing, and multimedia campaign management.
Company Update:
- On August 10, DCM reported Q2/2023 financial results with Revenue of $119.0 million, up 74.7%, which exceeded our estimate by $5.8 million. Unadjusted EBITDA in Q2/2023 was up 33.2% to $10.6 million.
- The year-over-year revenue and EBITDA growth were mainly attributable to the acquisition of Moore Canada Corporation (MCC), which closed during the quarter. We continue to believe this transaction enhances DCM’s capabilities and growth potential, with economies of scale and new products, services, and technology capabilities.
- Gross Margin was 26.9%, down slightly quarter-over-quarter, but in-line with our estimate of 27.0%. MCC’s lower average Gross Margin contributed to a decrease in the overall Gross Margin, however, DCM commented that integration synergies should yield Gross Margin improvements in the upcoming quarters.
FIGURE 1: DCM’s Q2/2023 Results Compared to eResearch Estimates
- As of June 30, 2023, DCM had $21.0 million in cash. The debt increased significantly to $112.7 million due to DCM financing the acquisition with debt, but, during the quarter, it proceeded to make repayments and also closed a $26.1 million Equity Raise and $23.1 million facility sale to help deleverage the Balance Sheet.
- DCM’s SG&A expenses were $23.0 million in Q2/2023, up 66.9% from $13.8 million in Q2/2022, and up from $18.8 million in the previous quarter. In Q2/2023, SG&A expenses represented 19.3% of Total Revenue, down 0.9% from 20.2% in the same quarter last year. MCC’s relatively lower SG&A expenses helped to reduce the overall SG&A expenses for the combined company.
- The Company reported a Net Loss of $2.9 million in Q2/2023, a decrease of $6.7 million from a Net Profit of $3.8 million in Q2/2022. Adjusting Net Income for Acquisition, Integration, and Other One-time costs, would result in Adjusted Net Income in Q2/2023 of $3.8 million, up slightly from $3.6 million in Q2/2022, and an Adjusted Basic and Diluted EPS of $0.08 per share, unchanged from Q2/2022.
- In the quarter, one-time adjustments of $3.8 million were booked, encompassing expenses linked to the acquisition of MCC, along with restructuring costs amounting to $2.7 million. The Company is targeting synergies from four target areas: operations, organization, procurement, and revenue. As the companies continue to integrate, restructuring costs may recur as an expense item over the next several quarters.
FIGURE 2: DCM’s Revenue Momentum Continued in Q2/2023
Financial Analysis & Valuation:
- We updated our model with the Company’s recent financials and adjusted our model to incorporate the merger with MCC.
- We estimate an equal-weighted price target of $6.90 based on a DCF valuation ($11.69/share), a Revenue Multiple valuation ($4.34/share), and an EBITDA Multiple valuation ($4.60/share).
We are maintaining a Buy rating and a one-year price target of $6.90.
You can download our 14-page Equity Research Report by clicking on the following link: eR-DCM-2023_08_17_UR-2023-Q2_FINAL
Other DCM Research Reports:
- Update Report (June 14, 2023): DCM and MCC Merger Closes and Leaps Forward with $26.1M Financing & $23.1M Facility Sale
- Update Report (March 10, 2023): Strategic Merger Between DCM and RRD Canada Sparks Industry Consolidation with Beneficial Synergies
- Update Report (November 11, 2022): Double-Digit Quarterly Revenue Growth Continues Positive Business Momentum and Strong EBITDA in Q3/2023
- Update Report (August 23, 2022): Strong Business Momentum Continues with Y/Y Revenue Growth of Over 23% in Q2/2022
- Update Report (July 29, 2022): DCM Corporate Strategy Drives Business Transformation with Q1/2022 Producing Largest Revenue Growth in 4 Years
- Update Report (April 29, 2022): DCM’s Quarterly (Q4/2021) Revenue Improves Y/Y as a Sign of COVID Impacts Easing
- Update Report (November 24, 2021): DCM Q3 Financials In-line as Consolidation Improves Cash Flow
- Initiation Report (August 16, 2021): Digital-First Strategy and Tactical Consolidation Drives EBITDA Growth at DCM
FIGURE 3: One-Year Stock Chart
Notes: All numbers are in CAD unless otherwise stated. The author of this report, and employees, consultants, and family of eResearch may own stock positions in companies mentioned in this article and may have been paid by a company mentioned in the article or research report. eResearch offers no representations or warranties that any of the information contained in this article is accurate or complete. Articles on eresearch.com are provided for general informational purposes only and do not constitute financial, investment, tax, legal, or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this information should consult with a financial advisor. The article may contain “forward-looking statements” within the meaning of applicable securities legislation. Forward-looking statements are based on the opinions and assumptions of the Company’s management as of the date made. They are inherently susceptible to uncertainty and other factors that could cause actual events/results to differ materially from these forward-looking statements. Additional risks and uncertainties, including those that the Company does not know about now or that it currently deems immaterial, may also adversely affect the Company’s business or any investment therein. Any projections given are principally intended for use as objectives and are not intended, and should not be taken, as assurances that the projected results will be obtained by the Company. The assumptions used may not prove to be accurate and a potential decline in the Company’s financial condition or results of operations may negatively impact the value of its securities. Please read eResearch’s full disclaimer.
