TECSYS has double-digit upside, says Cantor Fitzgerald Canada

A number of catalysts are lined up that could drive growth for TECSYS (TSX:TCS), says Cantor Fitzgerald Canada analyst Justin Kew.

In a research report to clients yesterday, Kew initiated coverage of TECSYS with a “Buy” rating and an $8.50 one-year target. The analyst says the company enjoys a stable recurring revenue model, an industry leading healthcare and complex distribution solution, stable services revenue, and industry tailwinds. This mix of positives means double-digit upside; Kew’s target implied a one-year return of 25% at the time of publication.

Headquartered in Montreal, TECSYS provides warehouse management and distribution solutions to the likes of Canon, Honda, Mitsubishi, and nearly 400 other clients. Kew thinks the company’s foothold in the healthcare sector, where its supply chain solutions are employed by 14 North American healthcare supply chains, is just the beginning. He notes that there are more than 600 integrated delivery networks (groups of hospitals and clinics that operate under a parent organization) in North America, half of which are large enough for TECSYS’s solution. Each of these networks, says Kew, generates about $1.3-million in revenue in year one, and $4-million over the first five years. He notes that management believes it can add one or two of these contracts each quarter, going forward.

Kew points to favourable industry trends as another catalyst. He notes that research firm Gartner estimates that supply chain management vendor revenue was (US)$8.9 billion in 2013, and had grown at Compound Annual Growth Rate of 7.5% over the past five years. The analyst expects this trend will continue due to factors such as robotics and automation, wearable and mobile computing, and sensors and the Internet of Things.

Kew believes TECSYS will generate EBITDA of $5.4-million on revenue of $54.2-million in fiscal 2015, a number that will grow to EBITDA of $7.1-million on revenue of $59.1-million the following year.

At press time, shares of TECSYS were down 1.5% to $6.75.