TECSYS is still undervalued, Echelon Wealth says

A new acquisition for TECSYS (TECSYS Stock Quote, Chart: TSX:TCS) has Echelon Wealth Partners analyst Amr Ezzat maintaining his bullish stance on the stock.

This morning, TCS announced it would acquire Ontario-based distributed order management software OrderDynamics Corp. for $13.37-million.

“We’re excited to welcome OrderDynamics to the TECSYS family,” TECYSYS CEO Peter Brereton said. “They will be a highly valued part of our team with their depth of expertise in the B2C retail domain. The powerful combination of our two companies will extend our reach into this fast-moving space and capitalize on our existing footprint in the key markets of North America, Europe, and Australia.”

Ezzat says this is a solid pickup for TECSYS.

“OrderDynamics is expected to deliver $7M in revenues (30% y/y growth) and -$2M in EBITDA for its fiscal year ending March 31, 2019,” the analyst notes. “Beyond the financials and the standalone high growth of the platform, we think the acquisition is a sound strategic move in that it also adds a critical piece to TECSYS’ solutions suite and ultimately will help the Company enhance the growth profile of its core complex distribution vertical (56% of total revenues and 50% of new account bookings). Namely, potential clients are increasingly requesting a distributed order management (DOM) system and dynamic e-fulfillment capabilities, something TECSYS didn’t have in its Supply Chain Management suite.”

In a research update to clients today, Ezzat maintained his “Buy” rating and one-year price target of $19.00 on TECSYSY, implying a return of 34.3 per cent at the time of publication.

The analyst thinks TCS will generate EBITDA of $9.7-million on revenue of $77.9-million in fiscal 2019. He expects those numbers will improve to EBITDA of $13.9-million on a topline of $87.7-million the following year.

“We remain fans of the secular growth trends TECSYS is exposed to and do not view recent top line slowdown as a knock on our investment thesis,” Ezzat adds. “The balance sheet remains very healthy post the acquisition ($24.4M in cash as at last quarter), providing the Company with ample room for more acquisitions to supplement its growth.”