Alithya Group is undervalued, Echelon Wealth says

In an update to clients on Monday, Ezzat reviewed Alithya’s latest acquisitions and reasserted his “Buy” rating and $5.50 price target, which at the time of publication represented a projected 12-month return of 46.3 per cent.

Montreal-based digital strategy and technology consultancy company Alithya on Monday announced the acquisition of also Montreal-based Askida, which specializes in software quality assurance and application development and modernization.

Operating in Quebec and Ontario, Askida was founded in 1998 and has 110 professionals working for it.

“I'm very proud to welcome more than 110 Askida experts to our ranks,” said Paul Raymond, President and CEO of Alithya. “Their expertise in application development is very complementary to that of Alithya, and our corporate cultures are similar. They also bring additional expertise in software quality assurance, which will allow us to develop new markets. Their Askida CT software solution, which automates continuous testing, will be a definite asset that will allow us to better serve our customers.”

The acquisition will cost Alithya $16.0 million in cash and stock, with Askida reporting $13.0 million in revenues. Ezzat estimates that Alithya paid 7.0x EBITDA for Askida, which is roughly in line with the company’s last acquisition.

Ezzat is calling the Askida purchase another in a line of accretive tuck-ins for Alithya, which in October bought IoT and AI specialist Matricis Informatique for $7.2 million, an addition that the analyst estimates is generating an impressive $1.0 million-plus in EBITDA on a roughly $6.0-million top line.

After Matricis, Alithya acquired Dallas-based Oracle cloud specialist Travercent for $23.7 million, which Ezzat estimates is generating an EBITDA in the range of US$2.5 to $3.0 million on revenue of about US$12.0 million.

Altogether, Ezzat says that smaller and more agile players in the IT Services sector stand to benefit more in the current age of the digital cycle, which highlights the cloud, application services, mobility, big data analytics and security.

“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,’” wrote Ezzat.

“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 Alithya 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,” he wrote.

Looking ahead, Ezzat thinks that ALYA will generate fiscal 2020 revenue and adjusted EBITDA of $289.4 million and $14.5 million, respectively, and fiscal 2021 revenue and adjusted EBITDA of $320.5 million and $21.6 million, respectively. (All figures in Canadian dollars unless where noted otherwise.)