Equity Research firm, eResearch Corp. (www.eresearch.com), recently published an 18-page update Equity Research Report on DATA Communications Management Corp. (TSX: DCM | OTCQX: DCMDF) about the release of its Q3/2022 Financial Results.
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.
The company’s 5-year business transformation continued to drive revenue growth and decrease costs. In Q3/2022, DCM reported double-digit year-over-year quarterly revenue growth, with revenue of $63.4 million, up 11.4% from $56.9 million in Q3/2021, and higher than eResearch’s estimate of $57.2 million. Revenue per employee over the past year reached $287,800, up more than 40% over the last five years.
During the quarter, DCM added $8 million of new business from a combination of additional revenue from existing clients and new business wins. Overall, the Company reported that it has received more than $30 million in new business year-to-date and its tech-enabled service pipeline remained strong.
In Q3/2022, Gross Margin was 31.4% in the third quarter, up 1.2% from 30.2% in Q3/2021, and slightly higher than eResearch’s estimate of 30.0%. Gross Margin benefited from the revenue mix and cost-saving initiatives implemented since the pandemic.
The company’s total debt level continued to drop year-over-year, although supply chain issues led to higher inventory levels to ensure that it could meet client demands. DCM expects working capital improvements as the raw material market normalizes. The company continued to pay down the higher cost fixed-term debt, which was $25.1 million at quarter end, down from $34.1 million at the end of 2021.
DCM’s Selling, General, and Administrative (SG&A) expenses were $14.9 million in Q3/2022, up 31.5% from $11.3 million in Q3/2021. The increase in SG&A expenses was attributable to wage inflation and increased commissions due to higher sales year-over-year.
In Q3/2022, DCM reported Adjusted EBITDA of $8.0 million, a decrease of 15.4% from $9.4 million in the same quarter last year but included $3.1 million of restructuring expenses in Q3/2021. In the third quarter of this year, Adjusted EBITDA was not affected by any restructuring expenses and it does not anticipate any restructuring charges for the balance of 2022.
DCM believes that the positive revenue momentum in 2022 will continue into Q4/2022. In the research report, eResearch raised its revenue estimate to $265.3 million from $259.1 million based on the higher revenue in Q3/2022. For its target price calculation, it maintained the revenue multiple at 0.8x and the EBITDA multiple at 7.0x but increased the WACC in the DCF calculation to 14% from 10%.
Based on eResearch’s model estimates, DCM has a low valuation multiple compared to its peers. The company is currently trading at 0.5x 2022 Enterprise Value to Revenue (“EV/Revenue”) compared with printer comps trading at 1.0x EV/Revenue and well below the Digital Asset Management (DAM) and Tech-Enabled Workflow providers trading at 3.5x and 1.9x EV/Revenue, respectively.
Chris Thompson, Director of Equity Research of eResearch wrote, “DCM multiples are below the low end of the revenue and EBITDA multiples compared to the various industry multiples and highlight the potential for DCM’s share price appreciation.”
For more information about eResearch’s 18-page update Equity Research Report on DCM, please visit www.eresearch.com.
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