TECSYS is still an attractive long-term investment, Industrial Alliance says

A quarter he describes as “mixed” has Industrial Alliance Securities analyst Blair Abernethy maintaining his “Buy” rating on TECSYS (TECSYS Stock Quote, Chart, News: TSX:TCS).

On Thursday, TECSYS reported its Q2, 2018 results. The company earned $1.35-million on revenue of $18.1-million a topline that was nine per cent higher than the $16.5-million the company posted in the same period last year.

“In the second quarter of fiscal 2018, solid bookings and revenue growth combined with flat to declining expenses led to a surge in profitability,” said CEO Peter Brereton. “The quarter was also a validation of our strategy to deploy one common technology platform that is robust and versatile into two diverse sectors, where each has a different sales cycle and is affected differently by external events. In the quarter, our complex distribution business achieved solid growth in terms of both new contract and base account sales, and added accounts in floor finishing products, heavy equipment and MRO. Our health care business continued to be constrained in the quarter by uncertainty around U.S. healthcare legislation; however, this situation seems to be improving based on orders signed early in the third quarter. Our pipeline and general business activity in health care remains strong. The board has approved an increase of the quarterly dividend of 11 per cent to five cents.”

Abernethy says TECSYS performed well with what he consider to be a key metric.

“Recurring revenue, the key value driver, came in at $6.5M versus our $7.0M estimate,” the analyst notes. “Management noted that the drop was largely due to FX, a revaluation of a customer contract worth ~$120K, and seasonal contract effects. Professional services was $7.9M compared to our $6.4M estimate, however management indicated that a one-time termination fee of ~$1M boosted the number for this quarter. Importantly, gross billings for the quarter was $11.5M (up 6% YoY), higher than the $10.5M we were modelling. Billings were up strongly (16%) from Q1. During the quarter, TECSYS booked three new complex distribution contracts totalling $2.5M with the remaining being renewal bookings.”

In a research update to clients today, Abernethy maintained his “Buy” rating and one-year price target of $17.00 on TECSYS, implying a return of 6.3 per cent at the time of publication.

Abernethy thinks TECSYS will generate EBITDA of $7.1-million on revenue of $72.3-million in fiscal 2018. He expects those numbers will improve to EBITDA of $10.3-million on a topline of $82.4-million the following year.

“We continue to believe that TECSYS has an attractive long-term SCM growth opportunity, particularly in the healthcare vertical driven by new IDN wins and new products,” Abernethy adds.