Copperleaf (TSX:CPLF) Files to List on the TSX Index

Posted on September 24, 2021 by Mathieu Litalien

September 29, 2021 - Coppperleaf announced that it is seeking to raise $125M-143.75M and price its offering between $11-13.00 per share. The company will issue between 11,057,691 to 13,068,181 common shares assuming the over-allotment option is exercised in full.

At the mid-range of pricing ($12.00 per share), that gives the company an approximate valuation of $835M. This gives it a P/S ratio of 14.42 which appears to be quite respectable for a high-growth tech company. This past week, we released a means of screening SaaS companies (such as CPLF) using the Rule of 40 (RO40) method. 

Putting that to the test here, Copperleaf would have a RO40 score of around 50 (62% growth - 11.2% EBITDA negative margin) based on 2020 EBITDA numbers. It may actually be higher than that on a TTM basis, but there isn't enough details in the prospectus to understand if positive adjusted EBITDA through the first six months of 2021 is an aberration. 

Regardless, what we have here is a new IPO that immediately meets the RO40 threshold. When we ran the RO40 screen last week, most companies were trading between 11 and 46 times sales. The SaaS companies with 50%+ revenue growth rates started at around 18 times earnings. Dye & Durham being the exception as it current trades at 11 times sales - however, that one is an outlier since it announced a potential private takeover which has stunted share price appreciation. 

In terms of the competition, Roper and Arcadis Group are trading at 8.1 and 1.6 times sales respectively. The problem however, is that both of these are not fully comparable since they offer a wide range of products, services outside of those that compete directly with Copperleaf. They are also not SaaS pure plays. As the company stated in their financials, there is no company that provides the end-to-end solutions in this particular niche market. 

All that being said, the IPO price point seems very reasonable. It is for this reason, we'd expect strong demand and for the IPO to price at the higher end of the range. There is a caveat to this - over the past week, valuations have come down quite significantly in the tech sector. This may hamper Copperleaf's demand which doesn't mean its a bad company, but the timing isn't great. 

We can see what bad timing can do to an IPO with a company like Dialogue Health (TSX:CARE). The difference is that when CARE IPO'ed, it was equally as expensive as the highest valued companies in the industry. That isn't the case here. Copperleaf is actually moreso at the low-to-mid end of SaaS valuations. 

We should hear about final pricing next week and the IPO is expected to close by October 11. Typically, this means when the company begins trading, but as we've seen a few times this year, the company can begin trading sooner than its closing date. 

September 24, 2021 - It has been a few months since we had any tech companies file to list on the TSX Index. On September 16, Copperleaf broke that trend as it filed to list on the TSX Index. While no pricing details have yet to be released, the company intends to list under the symbol "CPLF"

Copperleaf is a global data analytics company. It's flagship product, Decision Analytics Solutions, is an enterprise platform that enables "real-time planning and execution, allowing clients to optimize their portfolios to deliver financial plans with the highest possible value".

Impressively, Copperleaf boats 100% customer retention and has clients that have been with the company for 10+ years. The company's platform is being used to managed ~$2.3 trillion of infrastructure across 12 verticals and has a presence in more than 24 countries. 

As a global analytics company operating in a high pace industry, it is not surprising to see impressive growth out of Copperleaf.

It has achieved 62% revenue growth over the last twelve months and its backlog has grown to $85.5M. There is also plenty of room to grow as its total addressable market (TAM) is worth north of $12B. Which means it has captured less than 1% of the market to date. 

The company's solutions provide immediate benefits to companies and reduce planning efforts by 50% and approval times by up to 80%. It also delivers 20% more investment value and increases plan accuracy by up to 10%. All things considered, there is an immediate ROI of 100% for customers. 

This is pretty clear given that the company has 100% retention rate and 125% net retention revenue which means customers continue to rollout Copperleaf across their companies. It had 62 clients as of the end of June, up from 52 as of end of December and no customer makes up more than 7% of total revenue. 

This is a company that operates in a niche - while its solution can be used across multiple verticals, it is focused on making financial decisions easier. In other words it is an SaaS company that operates in the corporate financial management niche market. We really like niche companies especially those that have a strong track record of success with plenty of room for growth. 

In terms of competition, they indicate that most of their customers previously used spreadsheets such as Excel to support their decisions. In their views, there is no company that currently offers a comprehensive solution in this niche market. While some companies outsource to consulting companies, they believe their end-to-end decision analytics platform is more efficient, and provides better value. 

They do list some other niche competitors including Arcadis Group (EURONEXT: ARCAD), PowerPlan (Roper Technologies) (NYSE:ROP), Assetic (Dude Solutions), Cosmo Tech and Deighton. Of these, only two are publicly listed (ARCAD and ROP) and only ROP is listed in North America on the NYSE. Both will make for good comparisons once pricing details are made public. 

The company's main areas of growth are through new customer wins - not surprising given the large TAM - expand into new geographies and new infrastructure sectors. It doesn't look like they are focused on acquisitions here since there is plenty of runway to expand through new clients.

Overall we quite like what we see here. We very much like the industry in which it operates and there are not companies quite like it on the TSX Index. That alone should lead to some significant interest among investors. It is one to watch and we will update once pricing details are known. 

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post. Stocktrades Ltd will run advertisements on our posts. These advertisements do not represent an endorsement by us.

Mathieu Litalien

About the author

Mathieu is an individual investor and has been investing part-time for the better part of the past 20 years. He is primarily interested in fundamental analysis, focusing on the long-term and his portfolio is composed primarily of dividend-paying equities. Mathieu has a moderate risk profile and also looks for growth and value. His passion for finance and the markets have led him to his MBA and writing for Seeking Alpha and Stocktrades. Mathieu also focuses primarily on stock research and content production for Premium and the Stocktrades blog.