Tecsys still has 29 per cent upside, says Echelon Wealth

Echelon Wealth Partners analyst Amr Ezzat is staying bullish on supply chain management company Tecsys (Tecsys News, Stock Quote, Chart TSX:TCS) after its fourth quarter results but his slightly dampened outlook on the company’s top and bottom lines is cause for a target drop.

In an update to clients on Wednesday, Ezzat maintained his “Buy” rating while decreasing his target price from $19.00 to $17.00, representing a projected return of 28.5 per cent at the time of publication.

Tecsys reported its Q4 fiscal 2019 after market close on Wednesday, featuring sales of $23.2 million, up 22.7 per cent year-over-year and in line with Ezzat’s $23.8 million estimate but a touch lower than the consensus expectation of $24.5 million. EBITDA came in at $0.7 million compared to last year’s $2.3 million (Ezzat was forecasting $2.4 million and the Street $2.0 million).

The analyst noted that Tecsys ended the quarter with a healthy balance sheet, with $3.1 million in net cash and free cash flow of $3.7 million versus last year’s $3.3 million.

“While we acknowledge that the transition to SaaS has impacted revenues more severely and rapidly than we had anticipated, the business fundamentals are strong as ever with the Company achieving a third consecutive quarter of record bookings. We remain fans of the acquisitions of PCSYS and OrderDynamics. Both are sound strategic moves that greatly enhance TECSYS’ addressable market and growth profile going forward,” said Ezzat.

The analyst has revised his estimates to take into account the quarterly results and the company’s more aggressive transition to SaaS, dropping the company’s perpetual license revenue forecast. His new fiscal 2020 sales go from $105.1 million to $93.5 million and his fiscal 2020 EBITDA goes from $12.7 million to $3.2 million. Ezzat is now introducing fiscal 2021 numbers, calling for sales and EBITDA of $102.3 million and $10.7 million, respectively.

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