Alithya keeps Buy rating with Laurentian

Interested investors can expect a mixed quarter from Canadian IT Services provider Alithya Group (Alithya Group Stock Quote, Charts, News, Analysts, Financials TSX:ALYA), according to Laurentian Bank Securities analyst Nick Agostino. Laurentian published a company update on Alithya on Wednesday where Agostino maintained a “Buy” rating on the stock and $4.50 target price.

Monreal-based Alithya, which is set to report its second quarter fiscal 2023 on November 10, offers up a range of enterprise solutions including business analytics, resource planning and cloud solutions. The company saw revenue rise by 23 per cent year-over-year to $126.8 million in its fiscal Q1, with adjusted EBITDA at $6.2 million compared to $7.0 million a year earlier.

Agostino said he’s expecting $134.1 million in sales for the Q2, which would be up 27.4 per cent and featuring about 14 per cent organic growth due to demand for its Cloud solutions. The analysts’ consensus call is for $131.9 million.

Agostino said we can expect continued growth from Alithya’s US business featuring its Microsoft and Oracle deployments, with the analyst highlighting a recent US$10 million contract with a US dental insurer. On the Canadian end, business should remain strong, Agostino said, while a ramp-up in the company’s Higher Education segment is notable. 

On EBITDA, Agostino said he’s being a little cautious in modelling gross margins of 27.5 per cent and EBITDA at $6.7 million, which is under the Street’s call at $8.3 million.

“We look for opex at 22.5 per cent of sales, flat year-over-year, while we still await more meaningful benefits from back office, rent and other shared costs consolidation to move this level below 20 per cent, per the company’s target,” Agostino wrote.

“Relative to consensus, we have mixed expectations with sales ahead of consensus on strong backlog, record bookings ($145.4 million in FQ1) and healthy demand but with EBITDA below consensus on lower margins assumptions,” he said.

Alithya’s share price has been relatively stable over the past few years, although the stock has slid in recent months. Year-to-date, ALYA is currently down about 24 per cent. At the time of publication, Agostino’s $4.50 target price represented a projected 12-month return of 83.7 per cent.

Looking further ahead, Agostino is calling for full fiscal 2023 revenue and EBITDA of $544.3 million and $30.5 million, respectively, and fiscal 2024 revenue and EBITDA of $582.6 million and $45.4 million, respectively. 

The analyst said he expects Alithya’s balance sheet to remain levered, with net debt at the end of the fiscal Q2 of $141.0 million and with cash from operations of $2.3 million. 

“Management is actively looking to de-lever the Balance Sheet to the ~2x mark, with incremental cash flows from Vitalyst and Datum expected to aid this goal. We expect leverage to decline to ~3x by Q4/F24. ALYA also bought back 143k shares in Q2/F23,” Agostino wrote.