Laurentian Bank Securities analyst Nick Agostino is solidly in the corner of Sylogist (Sylogist Stock Quote, Chart, News, Analysts, Financials TSXV:SYZ), maintaining a “Buy” rating with a target price of $16/share for a projected return of 109.9 per cent in an update to clients on Monday.
Calgary-based Sylogist provides SaaS solutions primarily to education, nonprofit, NGOs and government verticals, with a global user base of nearly 2,000 customers.
Agostino’s analysis comes as a precursor to Sylogist’s second quarter financial results for the 2022 fiscal year, which are to be released on Thursday.
In his forecast, Agostino projects Sylogist to report $12.7 million in revenue for 43.3 per cent year-over-year growth, with the projection being roughly in line with the consensus estimate of $13.2 million.
“We note that excluding acquisitive contributions from Municipal Accounting Systems ($1.5 million incremental sales, Mar. 2021), Pavliks Group ($2.3 million quarterly sales, Oct. 2022) and Mission CRM ($0.2 million quarterly sales, Oct. 2022), we estimate organic growth of -2 per cent, excluding F/X, vs. -6 per cent in FQ1, with SYZ showing incremental momentum in reaching positive organic growth territory by year-end,” Agostino said.
Broken down by operating segments, Agostino forecasts $9.8 million in revenue to come from the company’s subscriptions and maintenance for a 40 per cent year-over-year increase while representing 77.2 per cent of Sylogist’s revenue.
Agostino then projects the company’s Professional Services segment to bring in $2.7 million for a 56 per cent year-over-year increase and 21.3 per cent of the revenue mix, with the remainder projected to come from Licenses ($140,000) and Product Revenue ($28,000).
In establishing his forecasts, Agostino pointed to management’s confidence in its M&A pipeline with signs of acceleration.
“Although somewhat impeded by the COVID-19 Omicron variant surge, we began deployments on the new awards we announced in November 2021 and revenue from these projects will largely be recognized in subsequent quarters of this fiscal year as we anticipated,” said Bill Wood, President and CEO of Sylogist in the February 9 press release announcing its first quarter financial results. “Our M&A execution also continues to create value, with the integration of our recent Pavliks and Mission CRM acquisitions proceeding ahead of schedule. With lead activity building and a strong pipeline, we are just beginning to realize the upside on our growth investments.”
On the margins, Agostino forecasts a gross margin of 68 per cent, which is a step below the 70 per cent reported in the same quarter of 2021, but a sequential improvement on the previous quarter’s report of a 65 per cent margin. The projection is in the high range of the 60-70 per cent guidance set by management, driven by a growing proportion of revenues from higher margin Subscription & Maintenance.
Meanwhile, Agostino projects $4.3 million in adjusted EBITDA for a 33.6 per cent margin, which would be an improvement on the 29.7 per cent margin reported in the last quarter, but down from the 50.2 per cent margin reported in the same quarter of 2021.
Agostino also forecasts $4.3 million in operating expenditures to account for 34 per cent of revenue, up 20.5 per cent year-over-year ahead of increased investment in R&D and S&M as the company builds up its sales force.
“With SYZ undergoing an investment cycle, we look for FQ2 margins to help confirm a 30 per cent margin floor, to support its ‘Rule of 40’ posturing,” Agostino said.
Agostino forecasts net debt of $17.3 million for the company, paired with $14 million in cash and $2.9 million in cash from operations, along with $99.3 million available in a revolving credit facility that was expanded from $75 million to $125 million earlier in the year.
“We remind investors that SYZ is aiming to add $20 million – $25 million in revenue from acquisitions annually going forward,” Agostino said.
Agostino projects continued growth for Sylogist over the next two years, affirming a 2022 revenue target of $52.7 million for a potential year-over-year increase of 36.2 per cent, followed by a 2023 estimate of $58.2 million for a potential year-over-year jump of 10.4 per cent.
From a valuation standpoint, Agostino forecasts the company’s EV/Sales multiple to drop from the reported 5.2x in 2021 to a projected 3.8x in 2022, then to a projected 3.5x in 2023.
Meanwhile, Agostino implies a slight compression in EBITDA in 2022, with the $17.9 million projection implying a margin of 34 per cent compared to the implied 44.4 per cent margin from 2021. Looking ahead to 2023, Agostino forecasts $21.5 million in EBITDA for an implied margin of 36.6 per cent.
In terms of valuation, Agostino projects the company’s EV/EBITDA multiple to fall from the reported 11.7x in 2021 to a projected 11.3x in 2022 and then to a projected 9.4x in 2023.
Sylogist has slumped to a 40.4 per cent loss in its stock price since the start of 2022, with a more pronounced drop occurring in early February after staying relatively level to that point. Sylogist is presently trading at $7.51/share, which represents a 2022 low.