With the third quarter of 2019 upon us, Echelon Wealth Partners analyst Amr Ezzat is feeling bullish about Alithya Group (Alithya Group News, Stock Quote, Chart TSX, NASDAQ:ALYA).
In a research update to clients today, Ezzat maintained his “Buy” rating and one-year price target of $7.00 on ALYA, implying a return of 98.9 per cent at the time of publication.
We are confirming Alithya Group Inc. (“Alithya”, “ALYA”, or the “Company”) as one of Echelon’s Top Picks, ” the analyst says. “With the stock currently trading at what we consider rock-bottom multiples and earnings momentum well underway, we believe the Company presents exceptional risk-reward characteristics. Our Buy rating is supported by a 12-month target price of $7.00/shr, providing for a 98.9% return from current levels. Looking further out, a more aggressive return potential is possible should the Company successfully execute on its M&A and margin expansion strategies. As we expanded in our recent initiation report, we believe the current valuation does not reflect the Company’s best-in-breed growth profile.”
Ezzat thinks ALYA will post EBITDA of $21.9-million on revenue of $308.2-million in fiscal 2020. He expects those numbers will improve to $24.6-million on a topline of $328.6-million the following year.
“The IT Services industry is in the midst of a paradigm shift; we believe smaller and more agile players stand to benefit more in the age of the digital cycle (cloud, application services, mobility, big data analytics, security),” Ezzat adds. “We believe the digital transformation (DX) presents a significant opportunity for IT Services companies pervading all industries and verticals with digital disrupters forcing incumbents to adapt or face the risk of getting “Amazoned”. We also believe that smaller, more nimble players with specialized offerings stand to benefit more than their larger counterparts in providing technology-driven innovation and capitalizing on the shift from traditional to digital solutions; speed and agility are increasingly becoming key success factors for service providers. We expect the Company to deliver above-average sales growth based on its exposure to the above-mentioned secular trends and cross-selling opportunities with its recently closed Edgewater acquisition. Namely, we expect the Company to grow sales at a 5-year CAGR of 18.5% through our forecast period. EBITDA grows at a 5-year CAGR of 24.4% during our forecast period, with margins expanding from 6.3% in F2018 to 8.0% in F2023, benefiting from operating leverage and synergies, as well as labour arbitrage.”
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