Tecsys has a 40 per cent upside, Laurentian Bank says

Ahead of third quarter earnings from supply chain management software company Tecsys (Tecsys Stock Quote, Chart TSX:TCS), Laurentian Bank Securities analyst Nick Agostino is maintaining his “Buy” rating and $18.00 target, arguing that the company is trading at a discount to its peers.

“We encourage investors to look at trading multiples that measure the benefits of recent acquisitions, OrderDynamics (over 30 per cent sales growth but negative profitability for ~18 months) and PCSYS (over 13 per cent EBITDA margin),” Agostino said in an action note to clients on Monday.

“As such on a NTM EV/Sales, TCS trades at 1.7x, a discount to the peer blend of 2.7x, and on C2020 EBITDA (which includes positive OrderDynamics EBITDA contributions), TCS is trading at 9.9x vs. peers at 13.3x,” he says.

Agostino says that Tecsys is showing solid momentum driving year-over-year organic growth, saying that excluding M&A activity, the company should show about eight per cent year-over-year organic growth.

The analyst is expecting fiscal 2019 third quarter EBITDA of $1.5 million on revenues of $20.4 million. For the 2019 year, he’s estimating EBITDA of $6.7 million on a top line of $81.2 million.

As far as the conference call goes, Agostino is expecting management to outline: (1) the company’s Internet delivery network (IDN) wins, especially with respect to increased interest in its Pharma solution; (2) Tecsys’ backlog and bookings growth, which last quarter involved a record backlog of $51.7 million and record bookings of $16.2 million; and (3) details on the integration progress and timeline for recent acquisitions OrderDynammics and PCSYS.

Agostino’s $18.00 target represents a projected return of 39.6 per cent at the time of publication.