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 increasing the one-year price target to $4.20 from $4.00
You can download our 18-page Equity Research Report by clicking on the following link: eR-DCM-2022_08_22_UR-2022-Q2_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 they 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
Business Transformation Continues to Drive Revenue Growth: In Q2/2022, DCM reported its strongest year-over-year revenue growth since 2018, with revenue of $68.1 million, up 23.4% from $55.2 million in Q2/2021, and higher than our estimate of $60.2 million.
- In Q2/2022, the tech-enabled subscription service fees were $2.4 million, up 112% compared to the same quarter last year.
- The Company reported Gross Profit of $20.4 million in Q2/2022, up 29.0% from $15.8 million in the same quarter last year.
- In Q2/2022, DCM reported Adjusted EBITDA of $9.5 million, an increase of 30.0% from $7.3 million in the same quarter last year.
- The Company reported Net Income of $3.8 million in Q2/2022, an increase of 490.7% from $0.6 million in Q2/2021.
- DCM Expects the Positive Momentum to Continue: The Company reported that it has received more than $22 million in new business this year and its overall pipeline remained strong with the tech-enabled service pipeline at over $10 million.
- Company’s Total Debt Level Drops Y/Y: Although supply chain issues led to higher inventory levels, Total Debt stood at $38.5 million, down 1.6% from $39.1 million in Q2/2021, but higher than $33.5 million in the last quarter. DCM expects working capital improvements in H2/2022.
- Multiples Still Trading Below Peers. DCM is currently trading at 0.5x 2022 EV/Rev compared with Printer comps trading at 1.1x EV/Rev, and well below the Digital Asset Management & Tech-Enabled Workflow providers trading at 2.3x and 3.8x EV/Rev, respectively.
5-Year Corporate Strategy
Starting in July 2021, DCM worked with the Boston Consulting Group on a 5-year strategy as it transforms into a Digital-First from a Print-First focused company. The key points of the 5-year plan are:
- Revenue: Grow the business between 5% and 10% over the next 5 years and be over $300 million in revenue again. In Q2/2022, revenue growth was over 23% and 17% year-to-date.
- Segment Growth: Marketing Technology revenue growth of 60% and contributing margins of 80%.
- Gross margins: In the range of 35-40% with digital capabilities contributing to higher margins.
- SG&A: In the range of 18% to 20%. In Q2/2022, SG&A was 20.2% so in-line with the plan. DCM plans to operate at Zero Overhead Growth (ZOG) over the 5-year plan.
- Adjusted EBITDA: In the range of 18% to 25%.
- Debt: The Company plans to pay off between $12 million and $13 million in 2022 and the current repayment schedule has it debt-free by 2026.
Figure 1: Five-Year Strategy
Financial Analysis & Valuation:
- We are raising our 2022 Revenue estimate to $259.1 million from $251.2 million based on the higher revenue in Q2/2022. We are maintaining our revenue multiple at 0.8x and our EBITDA multiple at 7.0x.
- For 2023 through 2026, we have increased our revenue growth rate to 5% from 3%, to be closer to the Company’s target of 5-10% revenue growth.
- We estimate an equal-weighted price target of $4.20 based on a DCF valuation ($7.25/share), a Revenue Multiple valuation ($3.25/share), and an EBITDA Multiple valuation ($2.10/share).
We are maintaining a Buy rating and increasing the one-year price target to $4.20 from $4.00.
You can download the full 18-page report by clicking here: eR-DCM-2022_08_22_UR-2022-Q2_FINAL
Other DCM Research Reports:
- 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 2: One-Year Stock Chart
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.
