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Data Communications Co. Closes on Acquisition

Source: Streetwise Reports

 

April 27, 2023 (Investorideas.com Newswire) Printing and marketing services company Data Communications Management Corp. is announcing the closing of its acquisition of R.R. Donnelley & Son's Canadian operations.

Printing and marketing services company DATA Communications Management Corp. (DCM:TSX; DCMDF:OTCQX) announced the closing of its acquisition of R.R. Donnelley & Son's Canadian operations.

Company President Richard Kellam called the transaction, which is expected to more than double the company's revenue, a "significant milestone" for the company.

"As one company, we are now focused on driving growth and value creation by delivering consistent and seamless service to our customers and positioning DCM for sustainable and long-term success," Kellam said.

DCM is acquiring RRD's Canadian operations for CA$130.8 million. RRD 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.

The companies are "a perfect fit," Kellam has said. The transaction "combines two companies with complementary operating models and best-in-class products, (and) very strong customer relationships . . . There (are) many meaningful benefits for our clients and for our customers, being bigger and better together and obviously, attractive financial benefits, and value creation opportunities for DCM."

The Catalyst: Complementary Operating Models

Analyst Chris Thompson of eResearch, in a March research note, said the companies have complementary operating models.

"The consolidated firm is poised to offer enhanced value and innovation to its customers, while DCM anticipates that this deal will establish a long-term, sustainable enterprise that caters to Canadian and U.S. customers," Thompson wrote, maintaining a Buy rating on the stock with a one-year price target of CA$4.50 per share.

After the news broke in March that DCM's revenue had risen 20% YoY from 2021 to 2022, DCM's stock went from CA$2 to CA$2.15. Analyst Clive Maund of CliveMaund.com predicted a powerful upleg for the stock and rated it a Strong Speculative Buy.

The stock has continued to rise since then and was CA$3.17 on Tuesday.

"We believe this transaction enhances DCM's capabilities and growth potential," Thompson wrote. "RRD Canada has a highly complementary operating model and is expected to add new products, services, and technology capabilities."

The new company would have about CA$520 million in annual sales from day one, an expanded customer base serving more than 400 enterprise clients, and an enhanced product portfolio, DCM said.

The company's new five-year strategic financial objectives are to grow annual revenues organically at a compounded annual growth rate (CAGR) of more than 5% per year, achieve adjusted EBITDA as a percentage of revenues of more than 14%, and reduce total net debt as a multiple of Adjusted EBITDA to less than 1.0x.

'Plenty of Upside Revenue Potential'

DCM the purchase price was CA$130.8 million cash through revolving credit and floating rate bridge facilities from a Canadian-chartered bank and a new CA$50 million fixed-rate credit facility from Fiera Private Debt.

Included in the purchase are three sites owned by RRD with an implied net value of about CA$30 million. DCM said it had entered a sale and lease-back arrangement for one of the sites and expects to realize net proceeds of about CA$23 million that will be used to substantially repay the bank bridge facility.

DCM 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.

The tech-enabled marketing and digital asset management (DAM) sectors are forecasted to grow annually by 15% and 21%, respectively, Thompson said. DAM services generated only 1.3% of the company's revenue in 2020. [OWNERSHIP_CHART-10607]

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.

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 1.67% or 0.74 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$144.53 million with 44 million shares outstanding, with 27.3 million shares free-floating. It trades in the 52-week range of CA$3.39 and CA$1.01.

Disclosures:

1) Steve Sobek wrote this article for Streetwise Reports LLC. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Data Communications Management Corp. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.

3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.

4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

eResearch Disclosures:

eResearch was established in 2000 as Canada's first equity issuer-sponsored research organization. As a primary source for professional investment research, our Subscribers benefit by having written research on a variety of under-covered companies. We also provide unsponsored research reports on middle and larger-cap companies, using a combination of fundamental and technical analysis. We complement our corporate research coverage with a diversified selection of informative research publications from a wide variety of investment professionals. We provide our professional investment research and analysis directly to our extensive subscriber network of discerning investors, and electronically through our website: www.eresearch.com

NOTE: eResearch company reports are available FREE on our website: www.eresearch.com

eResearch Intellectual Property: No representations, express or implied, are made by eResearch as to the accuracy, completeness, or correctness of the comments made in this report. This report is not an offer to sell or a solicitation to buy any security of the Company. Neither eResearch nor any person employed by eResearch accepts any liability whatsoever for any direct or indirect loss resulting from any use of this report or the information it contains. This report may not be reproduced, distributed, or published without the express permission of eResearch.

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).

eRESEARCH DISCLOSURE STATEMENT

eResearch is engaged solely in the provision of equity research to the investment community. eResearch provides published research and analysis to its Subscribers on its website (www.eresearch.com), and to the general investing public through its extensive electronic distribution network and newswire agencies. eResearch makes all reasonable efforts to distribute research material simultaneously to all of its Subscribers.

eResearch does not manage money or trade with the general public, provides full disclosure of all fee arrangements, and adheres to the strict application of its Best Practices Guidelines. eResearch accepts fees from the companies it researches (the "Covered Companies"), and from financial institutions or other third parties. The purpose of this policy is to defray the cost of researching small and medium-capitalization stocks which otherwise receive little or no research coverage.

DATA Communications Management Corp. paid eResearch a fee to have it conduct research and publish reports on the Company for one year.

To ensure complete independence and editorial control over its research, eResearch follows certain business practices and compliance procedures. For instance, fees from Covered Companies are due and payable before research starts. Management of the Covered Companies is sent copies, in draft form without a Recommendation or a Target Price, of the Initiating Report and the Update Report before publication to ensure our facts are correct, that we have not misrepresented anything, and have not included any non-public, confidential information. At no time is management entitled to comment on issues of judgment, including Analyst opinions, viewpoints, or recommendations. All research reports must be approved, before publication, by eResearch's Director of Research, who is a Chartered Financial Analyst (CFA).

All Analysts are required to sign a contract with eResearch before engagement and agree to adhere at all times to the CFA Institute Code of Ethics and Standards of Professional Conduct. eResearch Analysts are compensated on a per-report, per-company basis and not based on his/her recommendations. Analysts are not allowed to accept any fees or other considerations from the companies they cover for eResearch.

Officers, analysts, and directors of eResearch are allowed to trade in shares, warrants, convertible securities, or options of any of the Covered Companies only under strict, specified conditions, which restrict trading 30 days before and after a Research Report is published.

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