Sylogist Ltd T.SYZ

RE:RE:RE:RE:RE:RE:RE:BNN - recommended by David Barr today

[wellheeled]

Thanks for the considered response.  I did a little more digging to confirm a few things. I was hoping for better results.  It's always nice to find gold but this looks more like pyrite.  

I arrived at the negative organic growth by noting revenue was flat in 2018, 19, 20 at $38M.  Sylogist acquired 4 business since then, InfoStrat, MAS, Pavliks and the Mission.  Trailing revenues at the time of acquisition for each was $5.5M, $7.4M, $10.3M and $1M for a total of about $24M.  As a bit of InfoStrat revenue occurred in 2020, I rounded the total revenue down to $22M (although it was likely somewhat higher).  Adding $38M and $22M gives $60M.  This means organic growth is negative about 10% over the past 2 years.  Not much doubt in the calculation here.   Yes, overall revenue has increased due to the acquisitions that cost more than $50M in total.  It does appear the combined acquired business are not cash flow positive as EBITDA margins have fallen by nearly half while the acquired businesses are only contributing about 1/3 of the revenue.   Could the auditors require a goodwill write down of any of the acquired businesses?  An auditors valuation will be based on cash flow, not revenue.

The press release quote on $12M of new business seems positive at first glance but the lack of detail makes it difficult to analyze.  We do know that only 10% came from ARR.  Was the rest low margin service business?  Did they lose any business or customers during the period? What level of new business do they need to add to backlog just to hold the revenue over the coming quarters?  Suffice to say the press release on the new business revenue number is not that revealing and likely promotional. (It is a press release after all)

Management is indeed old.  Checking senior management on LinkedIn confirms that is the case (unless they started their careers in high school).   Why does the CEO’s profile contain so many years of employment gaps? - seems odd.

It also seems odd that the company is buying back their stock daily when it trades at over 50 times earnings.   They have done this buyback unsuccessfully for years, spending more than $30M that did nothing to grow the business.   With the claimed strong acquisition pipeline, isn’t there a target company trading below 50X earnings that can be acquired to expand the business?  Is there a pipeline of real acquisitions or is it fictional?  The evidence from the share repurchases confirm which case is true to me.  

There could be a trading opportunity here but I’ve done my DD and I’m moving on to better opportunities with clearer disclosure.   Even the analysts covering the company have cut their target prices by more than half in less than a year - that says a lot about believability.