Dye & Durham Limited (TSX:DND) has formed a “moat” around its services: analyst
Capital Ideas Media | October 21, 2020 | SmallCapPower: One of Canada’s most-recent initial public offerings, Dye & Durham Limited (TSX:DND), has seen its stock price surge more than 50% in its first month following its Toronto Stock Exchange debut on July 17, 2020.
(Originally published on Capital Ideas Media on August 25, 2020)
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D&D is a high-margin cloud software company that automates corporate and real estate work flow, due diligence, and compliance, automating mundane and undifferentiated processes to allow focus on higher-value activities. The Company sells its products in Canada, the United Kingdom, and Ireland.
The timing of Dye & Durham’s decision to go public could not have been much better – technology is hot right now, and the dearth of high-quality Canadian tech names has big money north of the border searching for stocks that could become the next Shopify Inc. (TSX:SHOP).
Canaccord Genuity recently initiated coverage of DND stock with a “Buy” rating, calling the Company “a self-proclaimed inorganic growth story.”
Its analysts argue that although Dye & Durham’s organic growth potential is “modest,” the Company has a “healthy” M&A pipeline of 20 plus acquisition targets (which could add an estimated C$300 million or more in revenue). DND is targeting 20-25% revenue and EBITDA growth.
Dye & Durham has more than 25,000 active clients, which includes Canada’s top banks and law firms, with an approximate 98% client retention rate along with 109% net revenue retention, prompting Canaccord to declare that DND has formed a “moat” around its services. History suggests that D&D’s customers are not price sensitive as they will pass along additional costs to their clients.
The brokerage firm estimates that Dye & Durham will increase its revenue 21% to $78.9 million in 2021 with a $43.6 million Adjusted EBITDA forecast, implying 19% growth and a 55% margin. And, this doesn’t factor in any potential M&A (the Company has completed 14 acquisitions in its history).
In going public, Dye & Durham was able to strengthen its balance sheet and now has pro-forma net debt of $43.5 million.
Finally, DND CEO Matt Proud owns 20% of the Company’s shares, suggesting his interests are strongly aligned with his shareholders.
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