Donnelley Financial: DA Davidson Says This Relative Newcomer To Fintech Has Room To Run

D.A. Davidson initiated coverage on Donnelley Financial Solutions Inc (NYSE: DFIN) with a Buy rating and $25 price target.

Donnelley — a provider of financial communications, compliance and collaboration solutions for those accessing the global capital markets — is a relative newcomer in the fintech space, despite its strong presence in the industry.

The company can count 422 of the S&P 500 companies and the majority of blue chip investment management names among its clients.

Conservative Guidance Implies Potential Upside

Donnelley is working to shift its revenue mix away from its legacy products segment toward services and software, D.A. Davidson analyst Peter Heckmann said in the initiation note.

While a steady decline in product revenue is expected to pull back earnings growth, the change in revenue mix is expected to help margins, the analyst said. 

Heckmann expects the company’s adjusted EBITDA margins to move above 20 percent by 2023.

The company’s fiscal 2018 growth guidance is roughly flat, which Heckmann sees as conservative given healthy macroeconomic conditions and stable equity markets this year.

“The key variable that could lead to upside/downside from management’s guidance is transactional activity in the capital markets area,” Heckmann said. The revenue derived from transactional activity has high margins and could meaningfully impact the company’s bottom line, he said. 

Donnelley’s valuation multiple is below its peers, but the analyst expects it to move closer as the company continues to grow its services and software business and develops a track record with investors.

Price Action

Shares of Donnelley Financial were trading 7.15 percent higher at $17.30 at the time of publication Thursday. 

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