Echelon launches coverage of ALYA with a “Buy”

Echelon Capital Markets analyst Rob Goff likes what he sees from Alithya Group (Alithya Group Stock Quote, Chart, News, Analysts, Financials TSX:ALYA).

In a research update to clients February 4, Goff initiated coverage of ALYA with a “Buy” rating and a 12-month price target of $2.70.

“We believe ALYA shares represent an attractive investment with potentially aggressive upside over time while downside risk appears modest,” the analyst wrote. “Two tough quarters have seen downward forecast revisions as the shares have declined 35% over the past six months. While investors await a return to 5%+ organic growth levels, we see an attractive opportunity where the shares reflect depressed valuations against baseline forecasts. Where industry forecasts call for growth to push upper single digits or greater, the Alithya consensus forecasts reflect organic only growth at sub-market growth levels despite compelling arguments in favour of a return to market or the above-market growth targeted by management.”

Goff thinks ALYA will post EBITDA of $33.0-million on revenue of $496.0-million in fiscal 2024. He expects those numbers will improve to EBITDA of $44.0-million on a topline of $519.0-million in fiscal 2025.

The analyst says Alithya Group is attractively valued.

“We see an opportunity where peers’ shares in the consulting space gained 22% for C2023 while ALYA shares declined 13% as they reflected a stronger correlation with the lower gross margin IT Services providers,” he said. “ALYA shares are valued at 8.7x C2024 EV/EBITDA while yielding 15% against C2024 FCF forecasts. Consultants such as CGI, Accenture, and Capgemini are valued at 12.7x, 17.8x and 11.0x C2024 EV/EBITDA with C2024 FCF yields at 5%, 4%, and 6%, respectively. Perficient (PRFTNASDAQ, NR), a closely matched peer, is valued at 12.9x F2024 EV/EBITDA with its F2024 FCF yield at 5%. While it operates with a different service model with hardware at 19% of sales, the domestic IT Services peer Softchoice (SFT-TSX, NR) represents the high-water mark at 9.6x C2024 EV/EBITDA with its C2024 FCF yield at 6% where Converge and QUIS are valued at 6.6x and 4.7x with C2024 FCF yields at 12% and 30%, respectively.”