SYZ stock is a buy, Echelon says

Ahead of the company’s Q4 results, Echelon Capital Markets analyst Amr Ezzat thinks there is still money to be made on Sylogist (Sylogist Stock Quote, Chart, News, Analysts, Financials TSX:SYZ).

In a research update to clients February 26, Ezzat maintained his “Buy” rating and price target of $11.00 on SYZ, implying a return of 25.5 per cent at the time of publication.

The analyst outlined what he expects from the results, which are due to be released March 14.

“We are going into Q423 largely in line with consensus estimates; we are calling for sales/EBITDA of $16.6M/$4.2M vs. the Street at $16.5M/$4.1M,” Ezzat wrote. “As highlighted in the Company’s conference call last quarter, we anticipate a slowdown in project services in the quarter attributed to usual seasonal headwinds stemming from the holiday season. Furthermore, we foresee an elevated level of capitalized R&D going into Q423 and expect it to settle back to normalized run-rate levels in 2024. We see any potential weakness as transient with no bearing on our long-term investment thesis.”

Ezzat thinks SYZ will post EBITDA of $16.7-million on revenue of $65.9-million in fiscal 2023. He expects those numbers will improve to EBITDA of $20.0-million on a topline of $74.5-million the following year.

The analyst pulled back to talk about his larger investment thesis on the stock.

“Under the leadership of a revitalized management team and board, Sylogist has shifted gears, leaving behind its old modus operandi of a “Steady Eddie” operator with outsized margins, to one seeking to capitalize on growth more aggressively. From an investor’s perspective, we believe the management and BOD refresh was a much-needed stepping stone to revitalize a stagnant business model. The embers of sales growth have been rekindled, igniting a new flame within the Company. But aggressive top-line growth is not without its growing pains. Margins compressed (as expected) as the Company invested to grow, however, we believe they currently sit at trough (or close to trough) levels. We thus believe focusing too narrowly on short-term earnings significantly (and incorrectly) undervalues SYZ shares as they give no recognition to the Company’s evolving margin profile. As such, we derive our $11.00/shr price target using a DCF analysis.”