A weaker than expected quarter may give investors a chance to scoop up shares of Tecsys(TSX:TCS) at bargain prices, says Echelon Wealth Partners analyst Amr Ezzat.
On Thursday, Tecsys reported its Q1, 2018 results. The company earned $69,000 on revenue of $16.5-million a topline that was three per cent better than the same period last year.
“The first quarter of our fiscal year covers the summer months and is typically our slowest quarter,” said CEO Peter Brereton. “This year however we experienced increased sales activity in the quarter resulting in a record level of contract bookings for a first quarter. Included in the new bookings is a contract from a provincial liquor board, the fourth to choose Tecsys for its SCM (supply chain management) needs, and another from one of our largest existing customers for additional distribution centre deployment. “The continued adoption of Tecsys solutions as the standardized platform for our customers and entire sectors is a testament to both the agility and reliability of our software. Today’s rapidly evolving supply chain requires agile solutions that the old monolithic systems struggle to provide.”
Ezzat notes that the quarter came in below the street’s expectations, but says he isn’t worried about it long term. In fact, the analyst says he expects big things very shortly from the company.
“While the numbers came in below expectations during the seasonally weak first quarter, we are not too fussed and point to the extremely encouraging booking growth number of 64% y/y, implying impending strong growth,” Ezzat says. “This was furthermore confirmed with conference call commentary pointing to increased traction with Healthcare customers and continued strong Complex Distribution performance. The Company’s share price is off ~20% from its 52-week high (May 29, 2017) creating a unique buying opportunity ahead of what we foresee to be a stellar year. As reflected in our above consensus estimates, we continue to think that the stars are aligned for a blockbuster F2018 with both segments strongly contributing to top line and management keeping costs relatively flat.”
In a research update to clients today, Ezzat maintained his “Buy” rating and one-year price target of $17.50 on Tecsys, implying a return of 28.6 per cent at the time of publication.
Ezzat expects Tecsys will generate EBITDA of $9.4-million on revenue of $78.1-million in fiscal 2018. He thinks those numbers will improve to EBITDA of $11.4-million on a topline of $91.5-million the following year.
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