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 but reducing our one-year price target to $6.75 from $6.90.
You can download our 16-page Equity Research Report by clicking on the following link: eR-DCM-2024_05_16_UR-2024-Q1-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:
- DCM reported Revenue of $129.3 million in Q1/2024, up 69.9% from $76.1 million in Q1/2023, but lower than our estimate of $139.0 million.
- Revenue fell short of expectations mainly because several projects from larger clients were postponed to later quarters. The Company reported that these projects are now scheduled for delivery in the second and third quarters of this year.
- To incorporate this change into our model, we lowered 2024 revenue to $542.3 million from $549.0 million, which negatively impacted our target price.
- DCM reported that it added $1.9 million in new sales from 10 new clients and over $12 million in “expansion” revenue from existing clients that should be recognized over the next year. DCM is still targeting an overall annual organic revenue growth rate of more than 5%, including growing its marketing technology solutions by more than 60%.
FIGURE 1: DCM’s Q1/2024 Financial Results Compared to eResearch Estimates
- Revenue per Associate (RPA) was $297,200, down 1.7% from $302,400 in 2023 but up 1.4% from April 24, 2023, the date of the MCC RPA is a focus for DCM as a measure of productivity, which the Company expects to grow over the next 12 months.
- DCM reported Gross Profit of $37.3 million in Q1/2024, up 57.9% from $23.6 million in the same quarter last year.
- DCM reported Adjusted EBITDA of $18.7 million in Q1/2024, an increase of 46.2% from $12.8 million in the same quarter last year. The EBITDA growth reflects the positive impact of the MCC acquisition and ongoing efforts to improve margins and reduce expenses.
- DCM reported Net Income of $1.5 million in Q1/2024 compared with a Net Loss of $2.4 million in the first quarter of 2023. Accounting for acquisition and integration costs, restructuring expenses, and net fair value losses on financial liabilities, Adjusted Net Income in the quarter was $4.9 million compared to $5.9 million in the same quarter last year.
- As of March 31, 2024, DCM had $19.8 million in cash and Total Debt stood at $96.7 million, down 3.5% from $100.3 million in Q4/2023.
- DCM mentioned that capital expenditures are projected to decrease in 2025, potentially releasing additional cash for various purposes, including the possibility of a share buyback or dividends in the future.
FIGURE 2: DCM’s Gross Margins History and Objective
Financial Analysis & Valuation:
- We updated our model with DCM’s recent financials, shifted the model ahead one quarter, and reduced the revenue in 2024 to reflect the lower first-quarter number.
- We estimate an equal-weighted price target of $6.75 based on a DCF valuation ($9.56/share), a Revenue Multiple valuation ($6.15/share), and an EBITDA Multiple valuation ($4.60/share).
We are maintaining a Buy rating but reducing our one-year price target to $6.75 from $6.90.
You can download our 16-page Equity Research Report by clicking on the following link: eR-DCM-2024_05_16_UR-2024-Q1-FINAL
FIGURE 3: One-Year Stock Chart
Other DCM Research Reports over the last year:
- Update Report (March 25, 2024) Record Revenue & EBITDA Growth Highlight MCC Acquisition Synergies and Improving Margins
- Update Report (March 1, 2024) 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
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.
