Canaccord Genuity lowers target price on DotDigital

Analysts at Canaccord Genuity lowered their target price on software firm DotDigital from 170.0p to 140.0p on Wednesday following the group's 2022 full-year results.

DotDigital's FY earnings revealed 8% organic growth, predominantly driven by its Asia Pacific operations and sales via third-party channels/connectors, while its Europe, Middle East, and Africa division and its US wind faced "well-flagged slower growth trajectories".

Adjusted underlying earnings and pre-tax profits of £14.5m were 4% ahead of Canaccord's forecast, supported by flat gross margins of roughly 82% and "modest" 6% opex growth.

The Canadian bank, which reiterated its 'buy' rating on the stock, believes that the soft macro environment, plus downgraded growth expectations at most US MarTech peers, had caused investor concern around the group's 2023 outlook.

However, it also noted that it was encouraged by management's decision to reiterate guidance of "continued profitable growth", with a return to double-digit percentage expansion expected in the mid-term.

"We have tweaked our sales, EPS, and net cash forecasts upward to account for the FY22 revenue, profit and cash flow beats. With improving visibility on continued high-single-digit growth we would expect the shares' current material discount to listed peers to start narrowing over time and eventually close," said Canaccord.

"Our new 140.0p target is reduced from 170.0p, reflecting the recent de-rating of the listed peer group, but offers close to 70% upside potential for the shares. We base it on a blend of 4x EV/Sales and 24x ex-cash P/E multiples on a calendar 2023E basis, both in line with the listed peer group."

Reporting by Iain Gilbert at Sharecast.com