Sylogist earns target raise at Paradigm

Its fourth quarter results are out and Paradigm Capital analyst Daniel Rosenberg is feeling more bullish about Sylogist (Sylogist Stock Quote, Chart, News, Analysts, Financials TSX:SYZ).

On March 14, SYZ reported its Q4 and fiscal 2023 results. In the fourth quarter, the company posted Adjusted EBITDA of $4.8-million on revenue of $16.2-million, a topline that was up 5.4 per cent over the same period a year prior.

“Our team delivered continuing strong results in Q4 and throughout 2023, pushing forward our plans to make Sylogist into a SaaS leader in the public sector,” CEO Bill Wood said. “Our success metrics to watch, including annual recurring growth, margins, net revenue retention and customer net promoter score, all trended to new highs for the company in Q4. We anticipate this momentum to continue in 2024.Throughout 2024, particularly in the latter half of the year, we foresee SaaS acceleration driven by expanding traction in the Sylogist Mission sector, new contributions from our Sylogist Ed and Gov sectors, and our growing partner community. Our focus remains on profitable organic growth while being prepared to seize strategic opportunities for scale or innovation, as seen with our recent Time Clock Now tuck-in acquisition.”

The analyst summarized the quarter.

“Sylogist reported Q4 results that were mostly in line with consensus. SylogistMission was a highlight, growing 17% y/y in the quarter owing to the “displacement of competition”,” he said.  “SaaS ARR was up nicely, growing 13% y/y to $27.6M,” he said. “Notably, management saw an 8x increase from deals sourced by its sales channel partners since the start of the year. Management expects organic growth in the low to mid-teens, with momentum picking up in the second half of the year. SylogistMission is expected to continue leading growth, and it also sees momentum growing for partner-sourced deals. Subsequent to the quarter, the company acquired Time Clock Now – a SaaS scheduling solution that complements Sylogist’s leading product suite nicely.”

In a research update to clients March 14, Rosenberg maintained his “Buy” rating but raised his price target on SYZ from $12.00 to $13.50, implying a return of 52 per cent at the time of publication, including dividend.

The analyst thinks SYZ will post Adjusted EBITDA of $19.6-million on revenue of $73.2-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $24.2-million on a topline of $82.3-million the following year.

“We value SYZ using a blend of EV/EBITDA multiple and a DCF on our 2025 forecast,” Rosenberg added. “We utilize a 14.0x multiple on 2025e EBITDA (unchanged). Our DCF utilizes a 2.2% (unchanged) terminal growth rate and a WACC of 11.25% (unchanged). The blended valuation results in our new $13.50 target (was $12.50). Shares trade at 9.1x 2025e EBITDA versus peers at 19.1x. We reiterate our Buy rating. With the bulk of investments completed, we expect the company to accelerate growth, which should translate into higher profitability as it benefits from operating leverage. We continue to favour Sylogist’s reliable recurring revenue, profitable organic growth and M&A opportunities. Markets have yet to give full credit for Sylogist’s turnaround, and we see an opportunity for a multiple re-rating as the company scales.”