Opinions
Stephen Takacsy, B. Eng, MBA
Tecsys Inc
TCS-T
PAST TOP PICK
Dec 11, 2024
Stock price when the opinion was issued
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Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Strong key performance indicators. Recent quarterly miss on earnings. SaaS business strong. Backlog burn slower than expected. Unlock Premium - Try 5i Free
TCS has performed really well in recent quarters due to strong Saas subscription bookings with Annual Recurring Revenue (ARR) up 27% to $75.4M compared to $59.5M in the same period last year, and is now trading at 3.7x times' Price/Sales.
In the 3Q, TCS’s total revenue grew 10% to $38.9M, beating estimates of $37M and EPS was $0.08, beating estimates of $0.07. The balance sheet is strong, with net cash of $27M.
Trailing twelve-month cash flow is still negative due to investment in working capital.
Based on consensus estimates, sales are expected to grow by 7%, while EPS is expected to be around $0.12 in 2023.
The company has been executing really well by growing its Saas subscriptions by more than 30%. It is not risk-free by any means, and its small size adds some risks.
But we would be comfortable adding.
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Based in Montreal, they sell supply-chain solutions to healthcare. Also in auto parts. They provide end-to-end solutions. They sold off hard in 2022, despite doubling revenues in the past 4 years, including growing high-margin recurring SAAS to 60% of total revenues. Profitable and reinvesting in organic growth. They dominate the US healthcare market. Trades at only 2.5x revenue, much lower than peers.
(Analysts’ price target is $46.40)Really likes the company and management, one of his biggest positions. Valuable technology franchise. De facto leaders in US for hospital supply chain management. All small- to mid-caps have been struggling for years. Lots of M&A, more to come.
Record results, this will continue with the backlog it has. Excellent, aggressive buying opportunity. No doubt in his mind that TCS will be snapped up down the road for significantly higher than trading today.
Sells to hospitals, now expanding to pharmacies. Gold standard in US hospital network system. Recurring software revenues growing by over 30% a year, gross margins have expanded to over 70%. Guidance that EBITDA margins will exceed 10% next year. Trades at 3.5x revenues, huge discount to US peers. High quality.