Alithya is headed to $4.25, says Laurentian

Record quarterly results and a healthy pipeline across the board are looking great on Canadian IT Services company Alithya Group (Alithya Group Stock Quote, Charts, News, Analysts, Financials TSX:ALYA), according to Laurentian Bank Securities analyst Nick Agostino, who reviewed Alithya’s latest financials in a client update on Tuesday. 

Montreal-based Alithya, which has IT services such as business strategy solutions, application services, enterprise solutions as well as data and analytics, announced on Tuesday its third quarter fiscal 2023 results, coming in with revenue up 19.2 per cent year-over-year to $130.8 million and adjusted EBITDA up 122.0 per cent to $10.0 million or 7.7 per cent of revenues. The company’s net loss for the quarter was $5.5 million or $0.06 per share compared with a loss of $3.5 million or $0.04 per share a year earlier.

The quarter also saw Alithya reach bookings of $136.6 million, representing a book-to-bill ratio of 1.04 for the quarter and 1.00 for the past 12 months, and it said it signed 37 new clients over the fiscal Q3.

“Strong year-over-year revenue growth, improving gross margins and EBITDA and significant cash generation and debt reduction are the result of the continued deployment of our strategic plan,” said President and CEO Paul Raymond in a press release.

Agostino said the top and bottom line results arrived in-line with estimates, where total revenue at $130.8 million compared to Agostino’s estimate at $135.0 million and the consensus forecast at $132.2 million. EBITDA at $10.0 million compared with Laurentian’s call at $9.9 million and the Street’s at $9.3 million.

“FQ3 results continue to demonstrate steady topline growth through strong organic growth and continue to deliver margin expansion from ongoing cost optimization initiatives. Results further support our modelling hence we leave our estimates unchanged,” Agostino said.

Agostino noted that on a regional basis, Alithya’s Canadian revenues were up 6.0 per cent year-over-year to $77.5 million, with the uptick coming from organic growth in all areas, while US revenues were up 47.9 per cent to $48.9 million. International business grew by 24.6 per cent to $4.4 million.

Agostino predicts further expansion in gross margins to come from an increase in permanent employee ratio and the company’s smart shoring strategy.

“Currently, ALYA’s smart shoring operations accounts for ~five per cent of its billable workforce as compared to its competitors at ~50 per cent. Using more of smart shoring capacity along with a reduced subcontractor workforce (six per cent in FQ3) to reduce project costs, there is a significant upside potential on the GM over time,” he said.

With the update, Agostino reiterated a “Buy” rating on ALYA and one-year target of $4.25 per share, implying a return of 87.2 per cent at the time of publication.