TECSYS is a buy, Ventum Capital says

Ahead of the company’s Q4 and fiscal 2024 results, Ventum Capital Markets analyst Amr Ezzat remains bullish on TECSYS (TECSYS Stock Quote, Chart, News, Analysts, Financials TSX:TCS).

On June 27, after the market close, TCS will report its Q4 results.

The analyst broke down what he expects from the quarter.

“Going into Q4/F24, we are the high on the Street, expecting an upswing driven by professional services going back to normal run-rate levels and continued strong SaaS performance,” Ezzat wrote. “Namely, we forecast sales/Adjusted EBITDA of $45.8M/$3.6M (11.1% YoY growth/7.9% margin) compared to the Street’s $44.6M/$3.0M (8.2% YoY growth/6.7% margin). The expected rebound in professional services is supported by increased project activities following the brief pause in the last two quarters – specifically, we are forecasting $14.9M in professional services versus $13.0M last quarter and $12.9M two quarters ago. Additionally, we are calling for SaaS revenues of $13.9M (25.0% YoY). While we anticipate that a restructuring charge (~$2.3M) will cause some (unadjusted) EBITDA volatility this quarter, investors should view this as a strategic realignment aimed at achieving annual cost reductions of $4.6M. The benefits are expected to start with two months in Q4/F24 and full realization in Q1/F25.”

In a reserch update to clients June 24, Ezzat maintained his “Buy” rating and price target of $45.00 on TCS.

The analyst thinks TCS will post EBITDA of $10.4-million on revenue of $173.1-million in fiscal 2024. He expects those numbers will improve to EBITDA of $17.1-million on revenue of $192.1-million in fiscal 2025.

“We believe using an EBITDA/earnings multiple on short-term earnings estimates significantly (and incorrectly) undervalues Tecsys shares as it gives no recognition to the Company’s evolving margin profile. Case in point, at the date of writing, the Street has TCS’ EBITDA margin at 9.6% in F2024 versus our estimate of 17.5% in F2028. So how would “slapping” a multiple on short-term earnings ever yield a correct “fair value”? Based on our long-term normalized EBITDA margin assumptions, we believe the Company currently trades at a normalized EBITDA multiple of ~8.3x,” Ezzat added.