Is Tecsys a buy? (September, 2024)

Following the company’s Q1, 2025 results, Ventum Capital Markets analyst Amr Ezzat has maintained his “Buy” rating on Tecsys (Tecsys Stock Quote, Chart, News, Analysts, Financials TSX:TCS).

On September 5, TCS reported its Q1, 2025 results. The company posted Adjusted EBITDA of $2.6-million on revenue of $42.3-million, up from the $42.0-million the company posted in the same period last year.

“We kicked off fiscal 2025 with solid momentum, setting a positive tone for the year ahead,” CEO Peter Brereton said. “Our continued SaaS performance is supported by the strength of our team and the impact of our partners, together driving growth in a highly engaged market. The supply chain market is on the move and we like our competitive position. We are confident in our ability to build on this strong start.”

Ezzat says the quarter wasn’t anything special, but argues that there is a real reason to like TCS right now, and that is its SAAS performance.

Tecsys reported Q1/F25 results yesterday evening that saw both revenues and EBITDA come in a touch below Street estimates. While headline sales were up 0.7% YoY, sales (ex-Hardware) grew a strong 8.9% YoY. The spotlight, however, remains squarely on SaaS, which delivered 33.2% YoY growth, surpassing our 32.0% estimate. This underscores the core of our investment thesis which lies in the fact that the revenue stream experiencing the fastest growth (SaaS) also boasts the highest margins, ultimately paving the way for aggressive earnings growth (see Exhibit 5). On the other side, gross profits from SaaS, Maintenance & Support, and Professional Services aligned with our expectations, however, consolidated gross profits were modestly impacted by the License and Hardware segments due to a higher mix of third-party licenses and generally lower Hardware margins in the quarter. The Company reiterated its F2025/F2026 guidance. We are reiterating our BUY rating and DCF-derived price target of $45.00, equating to a 19.2% total return.

In a research update to clients September 6, Ezzat maintained his “Buy” rating and price target of $45.00 on TCS.

The analyst thinks the company will post EBITDA of $15.8-million on revenue of $183.3-million in fiscal 2025. He expects those numbers will improve to EBITDA of $22.2-million on a topline of $207.4-million in fiscal 2026.

“The cornerstone of our investment thesis lies in the fact that the revenue stream experiencing the fastest growth (SaaS) also boasts the highest margins (~57%), ultimately paving the way for aggressive earnings growth, Ezzat added. “SaaS margins are projected to improve further, growing from ~57% in F2024 to ~70% by F2028. This drives TCS’ consolidated gross margins from the current 46% in F2024 to 56% by F2028. We then see EBITDA margins (conservatively) normalize at 17.5% in F2028 from F2024’s 5.6%, leading to a quintupling of run-rate EBITDA. As such, we encourage investors to adopt a longer-term view when evaluating the merits of investing in Tecsys.”