MELBOURNE AUSTRALIA, November 25, 2013 – Bestrane Group

Sears, Restoration Hardware, Home Depot and others turn to Descartes

We spent a few days speaking with customers and resellers at Descartes’ annual conference last week in Miami. Retailers are under pressure from Amazon and Wal-Mart to match same-day and next-day delivery options. Our sense from customer discussions and various contract announcements is that retailers are increasingly turning to Descartes as a key technology partner to help transform their delivery logistics. Resellers and customers described Descartes’ capabilities as unique, growing in importance and strategic. We see the same-day home delivery trend as an important, gradual growth driver for Descartes over the next few years.

Investment thesis: We now see Descartes as strategic industry partner

We have gradually become more enthusiastic about the unique value Descartes delivers to customers based on our increased interactions with customers, resellers and acquired companies. We now see Descartes as a strategic industry partner with a broad set of profitable SaaS offerings. We think the business can become stronger over time as its services gradually become standardized in the global logistics industry. As such, we think premium valuation is warranted.

Recap of recent financial results

In Sept., Descartes reported strong Q2/F14 (July 2013) results ahead of our forecast on several measures. Revenue grew 25% YoY to $38.2mm, including $3.9mm from a recent acquisition, and cash from ops grew 70% to $11.2mm, a record for the July quarter. EBITDA grew 15% to $8.9mm.

Valuation

DSG is trading at an enterprise value of 19.5 times C2014 EV/EBITDA. Target $18.00 shows good upside and is based on 20 times C2015 EV/EBITDA. We think valuation can expand due to rising cash generation, high margins and the strategic value of Descartes’ global logistics services. BUY.