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 17-page Equity Research Report by clicking on the following link: eR-DCM-2024_03_25_UR-2023-Q4-FINAL
Company Overview
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 March 19, 2023, DCM reported Q4/2023 and full-year 2023 financial results. Revenue increased to $130.0 million in Q4/2023, up 77.9% from $73.0 million in Q4/2022, and in-line with our estimate of $131.0 million.- For the full year, Revenue hit $447.7 million in 2023, up 63.5% from $273.8 million in 2022, and in-line with our estimate of $448.8 million.
- In Q4/2023, DCM reported Adjusted EBITDA of $15.0 million, an increase of 32.4% from $11.3 million in the same quarter last year. The Adjusted EBITDA for 2023 was $53.4 million, a 30.3% increase from the previous year.
- The Revenue and EBITDA growth were mainly attributable to the acquisition of Moore Canada Corporation (MCC), which closed in Q2/2023. DCM reiterated its forecasted total annualized synergies from the MCC acquisition of between $30 million to $35 million over the next 12 months, from operational, organizational, and procurement initiatives.
- We estimate DCM could generate over $54.4 million of EBITDA in 2024, which could be allocated towards debt reduction, dividend distribution, or exploring further acquisition opportunities.
- For the year, the Gross Margin was 26.6%, down 4.2% from 30.8%, but in-line with our estimate of 26.8%. The reduction in the Gross Margin was attributed to lower margin contributions from the MCC business, which lowered the overall gross profit margin of DCM. Despite this change, DCM reported that it has initiatives to improve the consolidated gross profit margins to at least 30%, the level DCM was at before the acquisition.
FIGURE 1: DCM’s Q4/2023 Results Compared to eResearch Estimates
- The Company reported a Net Loss of $6.4 million in Q4/2023, down from a Profit of $3.7 million in Q4/2022. Basic and Diluted EPS in the quarter was a loss of $0.12 compared to $0.08 and $0.08, respectively, in the same quarter last year. Net Income and EPS were negatively impacted in Q4/2023 and 2023 by $10.6 million of restructuring expenses in Q4/2024, primarily associated with the plans to close the Trenton and Fergus, Ontario facilities. Excluding the restructuring expenses, and acquisition and integration costs, net of taxes, would have resulted in a 2023 Adjusted Net Income of $12.8 million and an Adjusted Basic and Diluted EPS of $0.25.
- As of December 31, 2023, DCM had $17.7 million in cash and cash equivalents but continues to maintain a low cash balance to reduce the borrowing charges. The Company reiterated its focus on debt reduction as a key strategic priority and targets Net Debt of less than 1.0x Adjusted EBITDA (net of lease payments).
FIGURE 2: DCM’s Gross Margins History and Objective
Financial Analysis & Valuation:
- We updated our model with the DCM’s recent financials, shifted the model ahead one quarter, and slightly lowered the revenue growth from 2024 to 2026.
- We estimate an equal-weighted price target of $6.90 based on a DCF valuation ($10.05/share), a Revenue Multiple valuation ($6.32/share), and an EBITDA Multiple valuation ($4.40/share).
We are maintaining a Buy rating and a one-year price target of $6.90.
You can download our 17-page Equity Research Report by clicking on the following link: eR-DCM-2024_03_25_UR-2023-Q4-FINAL
FIGURE 3: One-Year Stock Chart
Other DCM Research Reports over the last year:
- Update Report (March 1, 2023) MediaValet Acquisition Multiple Bodes Well for DCM’s Valuation as its Pays Down Debt and Focuses on Tech Strategy
- Update Report (November 13, 2023) Revenue & EBITDA Growth Continues to Benefit from MCC Acquisition; Deal Synergies Now Targeting up to $35M
- Update Report (August 17, 2023): DCM Acquisition Provides 75% Revenue Jump & Cash Flow Growth as Merger Synergies Drop to the Bottom Line
- 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
Notes: All numbers 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.
