Tecsys has 23 per cent upside, Laurentian Bank says

Tecsys (Tecsys Stock Quote, Chart: TSX:TCS) delivered quarterly results that were below consensus on revenue and EBITDA, but its record booking and backlog were enough for Nick Agostino of Laurentian Bank Securities to maintain his “Buy” rating with the reduced target price of $17.00 (was $19.00).

Last Thursday, Montreal-based Tecsys reported its second quarter fiscal 2019 results, ended October 31, coming in with revenue of $18.2 million, a hair better than the $18.1 million from last year’s Q2, with EBITDA of $1.4 million, which compares with Q2/18’s $2.2 million.

“We have achieved record quarterly bookings driven by healthcare base accounts which grew 196 per cent year-over-year,” said Peter Brereton, President and CEO, in a press release. “We are off to a good start with our recent acquisition, OrderDynamics. The OrderDynamics platform processed $40 million worth of orders during black Friday week, an impressive 144 per cent increase over last year. Our pipeline remains strong and we will focus on capitalizing on our strong market position by growing our sales team and investing in marketing as we look to the second half of the year.”

Agostino says the revenue of $18.2 million was in line with his $18.0 million estimate but lower than the consensus $19.2 million, while on Adj. EBITDA, Tecsys’ $1.8 million was below his $2.2 million estimate as well as the Street’s $2.5 million.

At the same time, the analyst chose to emphasize the positive, including TCS’ fiscal Q2 books of $16.2 million, up 41 per cent year-over-year, and backlog of $51.7 million by the quarter’s end, a 21 per cent increase which exceeded a previous high set during fiscal Q3 of 2016.

“Despite the negative margin impact from increased S&M spend and the inclusion of OrderDynamics, we are encouraged by the strong demand witnessed by TCS as reflected by the record backlog/bookings, growth in healthcare, and strong initial growth at OrderDynamics,” says Agostino in an equity research action note to clients on Friday. “While TCS is going through an investment phase to capture growth both in its base business and at OrderDynamics, 18 months out we expect it to meaningfully benefit profitability through share and leverage gains.”

The analyst says his lowered target price reflects a higher cost structure and that with its near-term EBITDA depressed, the company is now trading at about 25x NTM EV/EBITDA versus its blended peers at 12x and trades at 2.1x NTM EV/Sales versus its peers at 2.6x. The $17.00 target represents a projected one-year return of 23 per cent at the time of publication.