Record revenue earns tech stock its ‘buy’ rating

Headquartered in Montreal, Tecsys develops software for supply chain management, as well as for related services, such as warehouse, transportation and distribution management. PI Financial technology analyst Pardeep Sangha continues to recommend this technology stock. He says its outlook is healthy and especially likes that its big order backlog gives a high visibility into its future revenue.

PI Financial technology stocks analyst Pardeep Sangha continues to download a “buy” recommendation, albeit a speculative one, for Tecsys Inc. (TSX─TCS), a Montreal-based maker of supply management software. But he’s boosting his 12-month price target to $11 from $10.50 a share. He writes:

For the fourth quarter of fiscal 2015, Tecsys posted revenue of $15.8 million — an increase of 27 per cent year over year, as well as $900,000 above the consensus call.

But at $1 million, the company’s EBITDA (earnings before interest, taxes, depreciation and amortization) was 24 per cent lower than last year, as well as $400,000 shy of the Street’s forecast.

Still, Tecsys had an exceptionally strong quarter, notching contract bookings of $16 million.

Not only was this $7 million higher YOY, but it also boosted the company’s end-of-quarter order backlog to $44.9 million.

Tecsys starred elsewhere, logging recurring revenue of $21.3 million — $3.7 million more than in the fourth quarter of fiscal ‘14.

The technology stock’s growth was fueled by the signing of new integrated delivery networks for hospitals, as well as by its 2014 purchase of Logi-D Holding, a provider of point-of-use technology. Indeed, that company accounted for roughly $1.4 million in sales.

In addition, Tecsys closed one more IDN contract in the quarter for a total of six in fiscal ‘15.

Nonetheless, because of its higher head count, the company’s overall operating costs jumped 55 per cent to $7.5 million from $4.8 million. The increase also reflects the purchase of Logi-D.

Thanks to a $6.9 million bought deal, Tecsys had $10.8 million in cash, as well as $4.8 million in debt as of April 30. The company also raised its quarterly dividend to $0.025 from $0.0225 a share.

In the meantime, Tecsys’ outlook is a healthy one, given its high visibility into future revenue thanks to its big order backlog.

In addition, the company is confident it can deliver on its signed contracts. Moreover, it continues to expect two new IDN customer signings in fiscal 2016.

We now see the company posting fiscal ’16 revenue of $65.8 million and not $64.1 million. But we’re cutting our EBITDA estimate to $6 million from $7.5 million.

For fiscal ’17, we’re pegging Tecsys’ revenue and EBITDA at $74.4 million and $9 million, respectively. We’ll also continue to monitor this technology stock’s increase in operating expenses.

 

Investor’s Digest of Canada, MPL Communications Inc.
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