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Record revenue from Tecsys keeps Echelon Capital bullish

Echelon Capital Markets analyst Amr Ezzat remains bullish on Tecsys (Tecsys Stock Quote, Chart, News, Analysts, Financials TSX:TCS), maintaining his “Buy” rating while raising his target price to $65.00/share from $60.00/share for a potential return of 18.6 per cent in an update to clients on September 9.

Founded in 1983, Tecsys develops and sells enterprise supply chain management software for distribution, warehousing, transportation logistics, point-of-use and order management, with clientele including healthcare systems, services parts, third-party logistics, retail and general wholesale distribution industries.

Ezzat’s latest update comes after Tecsys reported its first quarter financial results for the 2022 fiscal year, which Ezzat noted to be strong.

“Management’s commentary during the conference call suggests continued momentum going forward as the Company onboards new clients,” Ezzat said. “We remain bullish on TCS and believe there is more upside to be had from current levels.”

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Tecsys reported revenue of $33.2 million, slightly ahead of the Echelon projection of $31.9 million and the consensus expectation of $32.3 million. The figure represents a year-over-year increase of 18.3 per cent, boosted to approximately 25 per cent when accounting for constant foreign exchange. Professional services accounted for the portion of revenue ($13.1 million, 39.5 per cent of sales), while its SaaS sector accounted for the biggest year-over-year growth at 47.1 per cent.

Adjusted EBITDA came in at $2.5 million for the quarter, slightly outpacing the Echelon projection of $2.3 million, but missing the consensus projection of $3.2 million while being down 30 per cent year-over-year. Consequently, the EBITDA margin dropped to 7.4 per cent from 12.5 per cent, with Ezzat citing an unfavorable foreign exchange impact and higher expenses as factors.

Though the company’s free cash flow was a $5.7 million loss for the quarter, Ezzat said it does take into account $8.3 million of working capital drag, while the company’s balance sheet remains a strength with $30.2 million in net cash available.

“Fiscal 2022 is off to a very positive start. Our tenth consecutive quarter of record revenue demonstrates our sustained growth trajectory and is composed of a healthy blend of new customers and expanded investments from our existing accounts,” said Peter Brereton, president and CEO of Tecsys in the company’s September 9 press release.

“SaaS bookings demonstrated some lumpiness, being down after a very strong Q4. We saw legal and procurement bottlenecks as the primary factor here. That said, we added two new hospital networks in Q1 and have already added another in August. Our strong performance is being led by our truly adaptable agile solutions, which are resonating extremely well in a climate more attuned to the importance of supply chain execution excellence. As we continue to set records for the company on a quarterly sequential basis, we expect our very strong pipeline to yield accelerated growth and sustained upside,” Brereton said.

Tecsys has worked to onboard new partners and strengthen existing relationships, including the integration of its Elite Pharmacy Inventory Management System with Indiana-based Parkview Health, the integration of its Elite Healthcare supply chain platform in South Carolina-based McLeod Health’s system, while Australian fashion chain Politix, has begun using Tecsys’ retail order management system, Omni OMS, to aid with order fulfillment.

The company’s latest updates have prompted Ezzat to revise some of his estimates, with revenue for 2022 now projected at $141.1 million instead of $139.4 million for a potential 14.6 per cent year-over-year increase, along with a new adjusted EBITDA estimate of $14.5 million (10.3 per cent margin) instead of $15.9 million (11.4 per cent margin), and a slightly lower EPS projection of $0.47/share compared to $0.53/share.

Ezzat projects 2023 to be a big year for the company, with Ezzat projecting revenue of $167 million for a potential 18.3 per cent year-over-year increase, while the adjusted EBITDA is projected to jump to $27.6 million, which would mark a potential 90.3 per cent year-over-year increase, along with an increase in the margin to 16.5 per cent. Meanwhile, he also projects the company’s EPS to more than double in 2023 to $1.06/share.

Ezzat’s valuation data also comes into slightly clearer focus, with the EV/Sales multiple projected to drop from 6.2x in 2021 to a projected 5.4x in 2022, then down to a projected 4.6x for 2023. Meanwhile, Ezzat projects the company’s EV/EBITDA multiple to slightly rise from 46.9x in 2021 to a projected 52.3x for 2022 before falling to a projected 27.6x in 2023, which is also when he projects P/E for the first time at 51.9x.

Overall, Tecsys’ stock price has risen by 8.5 per cent for the year to date, reaching a high point of $65.55/share on February. However, the stock has risen steadily since May 25, when it bottomed out at $40.15/share.

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About The Author /

Geordie Carragher is a staff writer for Cantech Letter

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