ETWO

Publicly traded companies mentioned herein: Dun & Bradstreet Holdings Inc (DNB), E2open Parent Holdings Inc (ETWO)

Highlights

The presenter expressed his positive view on ETWO, a cloud-based, real-time supply chain management software solution leader to large enterprise / Fortune 500 companies. The secular trends behind the industry present a nice setup for this idea. The industry is poised for 10% + organic growth over next 5 years driven by two pieces: (1) the supply chain is becoming more complex (outages in COVID era, for example); and (2) there’s a need for more and better redundancy in the supply chain. E2open is a 100% cloud-based leader in end-to-end supply chain solutions. Their value proposition is that they’re not just a point solution. They bring together all the steps across the chain into a real-time solution: from monitoring components sitting on ships all the way through planning and customer end-demand.

Most companies don’t have a full end-to-end solution, so this software creates a real-time ability to make changes to prevent bottlenecks and can steer around outages quickly when those types of issues arise. E2open has layered on top of that software a diverse network to communicate through the supply chain when there’s an issue. 

ETWO has grown historically in the high single digits, but on their last earnings call, management said that growth is likely to accelerate to a low double-digit organic growth rate. The pipeline of opportunities is up 80% YoY. This is a company that has scaled EBITDA margins to low 30s and now generates a lot of free cash flow. Now they are going through pricing and data initiatives that could prove very significant over time, as they haven’t really monetized and put analytics around that data. A recently formed partnership with Dun & Bradstreet points to this opportunity set. 

The $1.7B cash and stock acquisition of Blue Jay Solutions announced June 2021 should also prove significant. It should give E2open a leg of the business it needed: transportation management on land (over the road, last mile, and the like). This is really a tip-of-the-spear product because as many customers are seeking an RFP, they evaluate this segment of transportation first. Blue Jay is a leader in the area, and we see interesting cross-selling revenue synergies here to drive the growth-rate of the combined company higher. That deal should close in the next 1 - 2 months and sets up the company nicely for long-term, 10%+ organic revenue growth. 

From a valuation standpoint, the stock trades at about 21x EBITDA compared to industry peers at 35x despite ETWO having slightly higher organic revenue growth. So there’s a 40%+ discount to peers currently.

Q: Any color on the recent weakness, or was the stock just caught up in the general SPAC selloff this summer?

They beat on the first two quarters. Key message of the last call was they think they can exit EOY at a low double digit organic growth rate which puts them at or above the plan that was laid out on the de-SPAC from the start. We do not think the Blue Jay acquisition has been viewed unfavorably as the funding of that deal came from one of the original investors who had done a ton of diligence. If anything, that should add to the level of confidence in the company’s strategy. So, we’d concur that the weakness is just part of the selloff in SPACs more broadly.