Alithya Group has an 82 per cent upside, says Laurentian

Ahead of quarterly earnings due next week from Montreal-based IT Services provider Alithya Group (Alithya Group Stock Quote, Charts, News, Analysts, Financials TSX:ALYA), Laurentian Bank Securities analyst Nick Agostino delivered a report to clients on Friday where he reiterated a “Buy” rating on the stock and $4.25 target price, good for a projected one-year return at the time of publication of 81.6 per cent.

Alithya should hit about ten per cent organic growth for its fiscal third quarter 2023, due on February 14, according to Agostino, who is forecasting revenues of $135.0 million, representing a year-over-year upswing of 23.1 per cent. On earnings, Agostino is estimating $9.9 million in EBITDA compared to $4.5 million for the company’s Q3 2022.

“Relative to consensus, our expectation for sales and EBITDA are slightly ahead backed by a solid backlog, healthy steady demand and improving gross margins,” Agostino said.

The analyst pointed to a few factors contributing to the rising topline, including: continued growth in Alithya’s US business, especially related to its Microsoft and Oracle deployments; a ramp up in its Higher Education segment related to the signing of its largest CRM contract in the Canadian higher ed space, along with its partnership with OneWorldSIS; and solid demand in general for digital transformation solutions and cloud adoption.

Agostino pointed to recent commentary from Alithya vendors Microsoft and Alphabet to support his position. On Microsoft, the analyst noted in-line growth in the company’s Q2 fiscal 2023, with Intelligent Cloud revenue up 18 per cent year-over-year and 31 per cent growth from Azure and other cloud services. Agostino relayed that Microsoft management forecasted a boost for Azure from cloud spending from the growth in AI-related services.

“This would be a positive growth driver for our ITSP/SI universe over the coming years, as MSFT focuses on OpenAI development/deployment,” Agostino wrote.

Agostino said Alphabet’s fourth quarter 2022 results showed significant growth in its Google Cloud Platform (GCP) in both its infrastructure and platform services, and the company is increasing investments in technical infrastructure, particularly in Cloud.

As for the longer-term picture on Alithya, Agostino is forecasting full fiscal 2023 sales of $532.6 million compared to $437.9 million for fiscal 2022 and for 2023 EBITDA of $35.7 million compared to $22.6 million a year earlier. Fiscal 2024’s numbers are $566.0 million in revenue and $45.3 million in EBITDA.

On a comps basis, Agostino has ALYA currently trading at 9.4x its next 12 months EV/EBITDA compared to peers at 9.7x.