before earnings . Laurentian says BUY Ahead of fourth quarter earnings from Canadian software company Sylogist (Sylogist Stock Quote, Charts, News, Analysts, Financials TSX:SYZ), Laurentian Bank Securities analyst Nick Agostino delivered an update where he maintained a “Buy” rating on the stock, saying Sylogist’s Professional Services segment should show strong year-over-year growth.
Calgary-headquartered Sylogist is a mid-market software firm with enterprise resource planning (ERP) solutions and customers in government, non-profit, NGOs, education board districts and defense and safety contractors. The company has add-in payroll and human resources software used globally by public and private customers.
Sylogist will be reporting its fourth quarter 2022 results on March 23, with the financials representing a stub quarter as the company moves its year end from September to December. Agostino is expecting Q4 revenue at $14.2 million, which would represent a 13.0 per cent increase over the company’s first quarter fiscal 2022 (also ended in December).
By segment, Agostino is forecasting sales of $9.3 million in Subscription and Maintenance, representing a six per cent year-over-year increase and supported by recent M&A, Product sales of $0.5 million, up ten per cent year-over-year, and $4.4 million in Professional Services, representing a 50 per cent year-over-year increase on new customer implementations and existing client upgrades.
Agostino said Sylogist is all cashed up and ready for more M&A and share buybacks. He put the company’s net debt at $17.6 million, with $8.3 million in available cash and $0.7 million in cash from operations for a leverage of 1.1x. The analyst noted that Sylogist also has $99.3 million available on its $125 million line of credit, bringing its total dry powder to about $108 million.
“From our recent marketing event, SYZ does not expect to be active in M&A before mid-2023 unless a coveted target presents itself, but the pipeline remains strongest over the last two years. The FCF available from its recent dividend cut is expected to be used for internal growth, M&A and debt repayment. SYZ has been active on its announced NCIB, purchasing 142k since Nov. ’22 and similarly, insiders bought 39k over the same period,” Agostino wrote in his report on Monday.
Agostino said he’ll be looking for commentary from management on the conference call on, among others, its pipeline of prospects in K-12, government, non-profit and NGO, commentary on inflationary pressures and economic outlook, commentary on the company’s backlog, booking and annual recurring revenue growth as well as colour and guidance on the current first quarter 2023 as well as the remaining quarters of 2023.
With his “Buy” rating, Agostino retained a 12-month target of $11.50 per share, which at press time represented a projected return of 128.5 per cent. Agostino said SYZ currently trades at 2.3x next 12 months EV/Sales and 9.0x next 12 months EV/EBITDA, which represents about a 60 per cent discount to its peers at 6.1x and 18.9x, respectively, excluding outliers.