Canadian Small-cap Model Portfolio
Information Technology
We are adding TECSYS Inc. (TCS) at a 3.0% portfolio weighting.
TECSYS is a name that ranked highly in our earnings momentum screen we
published last month (LINK), in which we added initial 3% portfolio positions to
both Pollard Banknote Ltd. (PBL, portfolio weight 3.3%) and Payfare Inc. (PAY,
portfolio weight 2.8%). The purpose of this screen was to pinpoint the earnings
momentum leaders among the Canadian small/mid-caps, characterized by positive
changes in 12-month forward consensus estimates. Although it ranked highly in
our screen, we were hesitant to add TECSYS at the time of publication (February
21) for two reasons. First, quarterly earnings were imminent for what is a relatively
higher volatile name; second, we were looking for earnings growth driven by positive
revisions and not simply high expected y/y growth. Revisions for TECSYS were
negative at that time.
However, last week, TECSYS reported an earnings beat, with Q3/F24 results (year-
end April) of $0.05 versus consensus expectations of $0.02. These positive results
on Friday were well-received by the market, yielding share gains of nearly 9%
(+8.9%). Importantly, estimates were revised higher, with 2025 consensus earnings
expectations climbing to $0.58 from $0.53 (+9.4%). Positive revisions have also
further raised the 12-month forward consensus estimate to more than 30% higher
versus three and six months ago, which would move TECSYS up to third in our
earnings momentum screen rankings.
In addition to this re-acceleration in earnings momentum, TECSYS also reported y/y
quarterly revenue growth of 8.9% in its results last week. Although TECSYS' share
price has not demonstrated high correlation, we are encouraged by its robust sales
growth over the past several years, which has increased y/y each quarter dating
back to Q3/2018. It is also worth noting that nearly 70% of revenues are generated
in the U.S., a desirable attribute for us that we have frequently discussed.
Shares in TECSYS have rallied YTD (+15.5%), and we believe that this trend could
continue on the strength of its constructive earnings and sales momentum. The
recent positive technical development of the 50D m.a. crossing above the 200D m.a.
(golden cross) also adds to our conviction in TECSYS. The addition of TECSYS,
a warehouse management software company, increases our technology portfolio
overweight that includes Topicus.com Inc. (TOI, portfolio weight 5.3%), Docebo
Inc. (DCBO, portfolio weight 5.2%), Celestica Inc. (CLS, portfolio weight 5.2%),
and Kinaxis Inc. (KXS, portfolio weight 2.5%).