Tecsys gets a bullish new target at Laurentian Bank

Solid fundamentals and record bookings and backlog are the story driving supply chain management software company Tecsys (Tecsys Stock Quote, Chart, News TSX:TCS), says Nick Agostino, analyst for Laurentian Bank Securities.

In a client update on Thursday, Agostino reviewed TCS’ second quarter results which beat across the board on solid growth, prompting a target raise on the stock.

Montreal-based Tecsys released its second quarter fiscal 2020 financials on Wednesday featuring revenue up 43 per cent year-over-year to $26.0 million and adjusted EBITDA of $3.7 million, double the $1.7-million a year earlier.

CEO Peter Brereton chalked up the success to the companies transition to SaaS licensing, where the company booked $2.35 million of SaaS annual recurring revenue during the quarter, $1.5 million of which was organic growth.

“We are experiencing strong demand across all lines of business and our recent acquisitions have proven to be effective contributors to growth and earnings. Our healthcare solutions continue to perform well as we added another new hospital network (IDN) during the quarter,” wrote Brereton, in a press release.

The top line of $26.0 million beat Agostino’s estimate of $24.4 million and the consensus forecast of $23.9 million, while the $3.7-million adjusted EBITDA was also better than Agostino’s $1.8-million forecast and the Street’s $1.7 million.

Drilling into the sales numbers, Tecsys’ third party products segment was up 32 per cent year-over-year to $3.6 million, proprietary products was down year-over-year but a surprise $1.7 million, according to Agostino, while the company’s professional services segment grew by 22 per cent to $10.2 million and cloud revenue was up 13 per cent to $10.1 million. Tecsys ended the quarter with a record $87.0 million in backlog, up 68 per cent year-over-year.

“FQ2 delivered one of the best quarters in TCS’s history with double digit organic growth in Cloud, SaaS, bookings and backlog, and is supported by strong demand in all three business lines (Healthcare, Complex Dist. (CD), e-commerce),” said Agostino.

“The result is flowing to EBITDA and we believe the leverage/growth is only now starting to ramp. Coupled with this, a reported strong pipeline gives us further comfort that demand/growth is sustainable, aided by Workday and product stickiness — all good things as TCS will increasingly be re-rated as a SaaS company with at least +30 per cent growth in margins potential (delivered ~34 per cent in FQ2 on adjusted basis),” he said.

The analyst has raised his forecasts following the strong quarter, with the increase particularly being shown in the company’s cloud revenues, strong SaaS bookings rate and third party products segment. Altogether, Agostino is now calling for fiscal 2020 sales and EBITDA of $102.8 million and $10.6 million, respectively, and for fiscal 2021 sales and EBITDA of $108.9 million and $10.9 million, respectively.

With the update, the analyst maintained his “Buy” rating but raised his target from $19.00 to $23.00 per share, representing a projected 12-month return of 24.6 per cent at the time of publication.

Shares of Tecsys are up 51 per cent year-to-date.