Source: Streetwise Reports (3/22/23)
Data Communications Management Corp., which recently announced its acquisition of a similar company, is reporting marked revenue increases in fiscal year 2022 over fiscal year 2021.
Data Communications Management Corp. (DCM:TSX; DCMDF:OTCQX) saw its revenue go up by 20% and its gross profit rise by 33% in the fourth quarter of 2022, as compared to the same quarter in 2021.
For the same period YoY, the printing and marketing services company said EBITDA was up 89.9%.
For the year ending Dec. 31, 2022, revenue was up 16.3%, gross profit was up 21.1%, and EBITDA was up 45.3% over the year ending Dec. 31, 2021, the company said. For that same period, net income rose by 792.4%.
With its recent announcement that it would acquire R.R. Donnelley & Sons’ Canadian operations, “We believe we are well positioned to further accelerate our positive momentum,” Chief Executive Officer and President Richard Kellum said.
Clive Maund rated Data Communications as an immediate strong speculative Buy.
“Combining DCM and RRD Canada will better position our business for sustainable and long-term success serving customers across North America,” Kellum said. “We believe the transaction also represents a compelling strategic opportunity for shareholders, as we expect the combined company to benefit from accelerated sales growth, reduced costs, enhanced financial performance, further operational efficiencies, and ultimately value creation.”
Analyst Clive Maund of CliveMaund.com wrote about the stock this morning. He noted that “after such a big advance, it might be thought that a top is forming, but this pattern has all the attributes of a bull Flag — the persistent heavy volume on the steep advance has been followed by a marked dieback as it has traded sideways, the Accumulation line has held up well, and the trading range can be seen to be tracking within a slightly downsloping parallel trend channel, in other words, a bull Flag.”
He continued, “This implies that the pattern will soon resolve into another powerful upleg that could very well be as big as the first upleg.”
He shared the above chart and went on to rate Data Communications as an immediate strong speculative Buy.
The company’s year-end revenues beat estimates made by eResearch analyst Chris Thompson, who had predicted CA$265.3 million compared to the actual total fiscal year 2022 revenues of CA$273.8 million.
That, along with the acquisition of RRD, could end up affecting Thompson’s future valuation of the company. Both the revenue increase and the acquisition could increase his equal-weighted target price per share to CA$6.02 from CA$4.44, he said.
“However, until the full financials are released, or the merger closes, we are maintaining a Buy rating and a one-year price target of (CA)$4.50,” Thompson wrote.
Acquiring RRD brings in a team that complements DCM’s own workforce, Thompson said.
“We believe the deal will be accretive to DCM’s financial profile as it accelerates DCM’s revenue and EBITDA growth and diversifies its revenue base,” he wrote.
The Catalysts: Revenue Growth, RRD
DCM attributed the revenue growth to a “combination of expansion revenue with existing clients and new business wins.”
The company reported successfully onboarding 35 new enterprise clients in 2022, increases in client and employee engagement, almost 700,000 trees planted in its PrintReleaf sustainability initiative, and productivity improvements, including the revenue-per-associate metric reaching its year-end target of CA$300,000. That’s an increase of 18% compared to 2021.
The company’s year-end revenues beat estimates made by eResearch analyst Chris Thompson, who had predicted CA$265.3 million compared to the actual total fiscal year 2022 revenues of CA$273.8 million.
Fiscal 2022 revenue was up CA$38.5 million vs. 2021, and gross profit jumped CA$14.7 to CA$84.2 million, the company said. Gross profit as a percentage of revenues grew from 1.3% to 30.8%.
Net income rose CA$12.4 million to CA$14 million, and EBITDA grew CA$11.3 million to CA$36.4 million.
There were no restructuring expenses or other adjustments or one-time costs, except for one-time add backs CA$1.9 million in Q4 for costs related to the acquisition of RRD, the company said.
Total debt was lowered 26% YoY to CA$27.3 million.
Revenue for Q4 2022 was up CA$12.2 million over the same period in 2021 to CA$73 million. EBITDA grew CA$4.5 million in Q4 2021 to CA$9.5 million in Q4 2022.
CA$500 Million in Annual Sales From Day 1
The tech-enabled marketing and digital asset management (DAM) sectors are forecasted to grow annually by 15% and 21%, respectively, Thompson has written.
“As DCM executes its ‘digital first’ strategy, we expect revenue from technology-enabled hardware solutions and tech-enabled subscription services and fees to increase,” Thompson has written.
DAM services generated only 1.3% of the DCM’s revenue in 2020. But “with the proliferation of video and digital content, the total DAM addressable market is forecasted to reach US$6 billion by 2025; thus, there is plenty of upside revenue potential,” Thompson wrote.
“We believe this transaction enhances DCM’s capabilities and growth potential,” Thompson wrote on March 10. “RRD Canada has a highly complementary operating model and is expected to add new products, services, and technology capabilities.”
R.R. Donnelly Canada provides print and related services to thousands of customers across the country, had a revenue of about CA$250 million in 2022, and has 1,000 employees. DCM is only buying the Canadian operations of RRD, which has clients in 29 countries.
“We believe this transaction enhances DCM’s capabilities and growth potential,” Thompson wrote on March 10. “RRD Canada has a highly complementary operating model and is expected to add new products, services, and technology capabilities.”
The new company would have more than CA$500 million in annual sales from day one, an expanded customer base, and an enhanced product portfolio, DCM said.
DCM has been in business for 60 years. It helps companies with branding, communications, and logistics and provides customer loyalty programs, data, and content management, location-specific marketing, labels and asset tracking, multimedia campaign management, and workflow management. Its clients are in many industries, including financial services, health care, emerging markets, retail, non-profits, energy, hospitality, and transportation.
| Retail: 55% |
| Management & Insiders: 45% |
| Institutions: 0% |
| Strategic Investors: 0% |
55%
45%
*Share Structure as of 3/21/2023
Ownership and Share Structure
Management and insiders own about 45% of DCM, including a share program that gives employees close to 4% ownership.
Top insider shareholders include Director Michael Sifton with 10.2% or 4.5 million shares, Board Vice Chairman Greg Cochrane with 7.43% or 3.28 million shares, Chairman of the Board J.R. Kingsley Ward with 5.54% or 2.44 million shares, and the CEO Kellam with 1.66% or 0.73 million shares, according to Reuters.
According to the company, the rest, 55%, is retail. Reuters lists KST Industries Inc. as the top shareholder in the company overall, with 11.69% or 5.15 million shares.
The company is covered by Noel Atkinson of Clarus Securities and Chris Thompson of eResearch. Newsletter writer Clive Maund also covers the stock.
It has a market cap of CA$89.01 million with 44 million shares outstanding, with 27.3 million shares free-floating. It trades in the 52-week range of CA$2.18 and CA$1.01.
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Disclosures for eResearch, Data Communications Management Corp., March 10, 2023
ANALYST ACCREDITATION
eResearch Analyst on this Report: Chris Thompson CFA, MBA, P.Eng. Analyst Affirmation: I, Chris Thompson, hereby state that, at the time of issuance of this research report, I do not own common shares, share options, or share warrants of DATA Communications Management Corp. (TSX:DCM).
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