Tecsys gets upgraded to buy at Beacon Securities

Supply chain management firm Tecsys (Tecsys Stock Quote, Chart TSX:TCS) is getting an upgrade from Beacon Securities analyst Gabriel Leung, who says that with its share price down 15 per cent year-to-date, its expanding healthcare footprint and the just-announced accretive acquisition of PCSYS A/S, the stock is now a “Buy” (previously “Hold”).

On Friday, Montreal-based Tecsys announced the acquisition of Danish technology company PCSYS A/S for $13.7 million in cash.

“PCSYS has found a like-minded customer-first spirit with Tecsys, and we are pleased to welcome their employees to our growing team,” said Peter Brereton, president and CEO of Tecsys, in a press release. “The PCSYS solutions are highly valued by many across the European market and beyond, and we’re pleased to be able to continue their tradition of collaborative software development and customer service as a unified force.”

Leung says the acquisition (PCSYS had revenue and operating profit of $15.4 million and $1.8 million, respectively, last fiscal year ended September 2018) adds to the rosier picture for TCS.

“While we will adjust our estimates for PCSYS post the release of the fiscal Q3 results (expected mid-March), we would argue that the acquisition does give us better comfort into our forward EBITDA forecasts,” the analyst said in a client update on Friday. “Based on our current FY20e (ending April 2020) EBITDA estimate of $10 million, the stock is trading at ~12.5x EV/EBITDA, which we view as an attractive entry point based on historical metrics.”

Leung adds that Tecsys continues to operate with a “very healthy” backlog of $51.7 million and that in its healthcare segment, the company is dealing with a $9.6-billion market opportunity of which Tecsys currently has about six per cent base account penetration and that with those base accounts, there is a $610-million opportunity of which the company has only penetrated 17 per cent.

“The point being, there’s still a lot of low hanging fruit that can drive Tecsys’ organic growth,” he says.

Leung’s “Buy” rating comes with an unchanged $15.00 target price which represents a projected return of 41 per cent at the time of publication.