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On today’s TSX Breakouts report, there are 64 stocks on the positive breakouts list (stocks with positive price momentum), and five securities are on the negative breakouts list (stocks with negative price momentum).

Featured today is a stock that may temporarily appear on the negative breakouts list. The share price is currently in correction mode, declining 13 per cent over the past eight trading days. Despite this pullback, the share price is still up over 30 per cent year-to-date. With a unanimous buy call, the average 12-month target price implies a potential 24 per cent price return. The company has a strong balance sheet boosted from a recent equity financing. When this cash is put to use, via a potential acquisition or acquisitions, the share price may quickly bounce back.

The stock highlighted today is Tecsys Inc. (TCS-T).

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A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Montreal-based Tecsys provides supply chain management software to its customers, providing solutions in areas such as warehouse, distribution, and transportation management. With over 1,000 customers, the company is a software supplier across four key markets: healthcare, retail, distribution, and third-party logistics.

In terms of geographical breakdown, in fiscal 2020 (the company’s fiscal year-end is April 30), approximately 58 per cent of the company’s revenue was from U.S. customers, roughly 23 per cent was derived from Canada, 18 per cent was from Europe, and the balance, 1 per cent, was from the rest of the world. Consequently, the company faces currency risks with the majority of its revenue denominated in U.S. dollars, while most of the company’s expenses are denominated in Canadian dollars.

In fiscal 2020, $41.1-million or 39 per cent of the company’s total revenue was from cloud, maintenance and subscription services. This recurring revenue provides the company with earnings visibility and predictability. Management remains focused on transitioning more of its revenue to a SaaS (Software as a Service) model with its committed, recurring revenue.

On July 8, the company reported record sales. Revenue came at $27.7-million, up 20 per cent year-over-year and slightly ahead of the consensus estimate of $26.5-million. Gross profit margin was 46 per cent, down from 47 per cent reported during the same period last year. However, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) fell short of expectations, coming in at $2-million, below the Street’s forecast of $2.3-million. On the earnings call, management said there would be near-term pressure on profit margins due to higher sales and marketing, and research and development expenses. Management believes these investments will result in the company capturing market share and boosting revenue over the medium and long run.

During the quarter, the company signed eight new contracts with a combined value of $25.4-million. Backlog, an indicator of future revenue, stood at $120.4-million at quarter-end.

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The company has a fortified balance sheet with $27.5-million of cash and cash equivalents and $10-million in short-term investments at year-end. In April, Tecsys completed a $23-million equity financing, issuing over 1.3 million shares at a price per share of $17.25.

On the earnings call, president and chief executive officer Peter Brereton remarked on the company’s strong financial position, “This provides management with unprecedented flexibility to aggressively seek new opportunities and to build upon and accelerate ARR growth, that’s annual recurring revenue growth, of course, in our key segments.”

After the company released its financial results, the share price climbed 2.5 per cent the following day and rallied a further 5 per cent the next day.

The company is expected to report its first-quarter fiscal 2021 financial results at the beginning of September. The Street is anticipating Tecsys to report revenue of $26.8-million, EBITDA of $1.7-million, and earnings per share of 4 cents.

Dividend policy

The company pays its shareholders a quarterly dividend of 6 cents per share, or 24 cents per share yearly. This equates to an annualized dividend yield of 0.9 per cent.

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In Dec. 2019, management announced a 9 per cent increase to its quarterly dividend, lifting it to its present level of 6 cents per share from 5.5 cents per share. Since 2015, the company has announced dividend increases at least one time each calendar year (twice in calendar 2016).

Analysts’ recommendations

This small-cap stock with a market capitalization of $403-million is covered by five analysts, and all five analysts have buy recommendations.

The firms providing research coverage on the company are: Cormark Securities, Echelon Wealth Partners, ISS-EVA, Laurentian Bank Securities and Stifel Canada.

Revised recommendations

In July, all five analysts revised their expectations, all higher, and in many cases, significantly higher.

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  • Cormark’s Gavin Fairweather raised his target price to $33.50 from $23.50.
  • Laurentian’s Nick Agostino increased his target to $34.50 from $24.50.
  • Stifel’s Deepak Kaushal took his target up by $5 to $35.
  • Echelon’s Amr Ezzat lifted his target to $35 from $25.
  • ISS-EVA’s Anthony Campagna upgraded his recommendation to an “overweight” from a “hold.”

Financial Forecasts

The Street anticipates the company will report revenue of $115.5-million in fiscal 2021, up from $104.9-million reported in fiscal 2020 (organic, or internal, revenue growth was 14 per cent in fiscal 2020), and $127.3-million in fiscal 2022. The consensus EBITDA estimates are $10-million for fiscal 2021, climbing to $15.4-million in fiscal 2022. The Street is anticipating earnings per share will come in at 22 cents in fiscal 2021 and 48 cents in fiscal 2022.

Top line expectations have increased but bottom line expectations have declined for this fiscal year, as higher expenses are forecast. For instance, three months ago, the Street was anticipating the company would report revenue of $112.3-million for fiscal 2021, EBITDA of $12.1-million, and earnings per share of 33 cents.

Valuation

According to Bloomberg, shares of Tecsys are trading at an enterprise value-to-sales multiple of 3.3 times the fiscal 2021 consensus estimate and at 3 times the fiscal 2022 consensus estimate.

The average 12-month target price is $34.50, implying the share price has nearly 24 per cent upside potential over the next year.

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Insider transaction activity

Year-to-date, two insiders have reported trades in the public market.

Between July 13-16, executive chairman David Brereton sold a total of 97,500 shares at an average price per share of approximately $29.59 for two accounts (81,250 shares in his personal trading account and 16,250 shares in an account for which he has indirect ownership). Proceeds from the sales, not including commission charges, exceeded $2.8-million. After these transactions, this particular personal trading account held 1,687,252 shares, and the account in which he has indirect ownership (holding company, Dabre Inc.) held 199,886 shares. Mr. David Brereton maintains an ownership position exceeding 10 per cent of the shares outstanding.

In a relatively small transaction, on March 11, chief financial Mark Bentler invested roughly $20,000 in shares of Tecsys. He purchased 1,113 shares at a price per share of $17.93, increasing this specific account’s holdings to 4,507 shares.

Chart watch

Year-to-date, the share price is up 31 per cent. However, the share price has fallen 13 per cent over the past eight trading sessions.

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The stock is thinly traded, which can lead to volatility in the share price. The three-month daily average trading volume is low at approximately 13,000 shares.

In terms of key technical resistance and support levels, the share price has major overhead resistance between $30 and $32. Should the share price continue to fall, there is initial technical support around $27, near its 50-day moving average (at $27.24). Failing that, there is strong support around $25.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Tuesday's TSX breakouts

Positive BreakoutsAug. 17 close
AFN-TAg Growth International Inc $37.17
ORA-TAura Minerals Inc. $244.99
BAD-TBadger Daylighting Ltd $36.65
BIR-TBirchcliff Energy Ltd $1.56
BLN-TBlackline Safety Corp. $6.54
DOO-TBRP Inc $63.55
CNR-TCanadian National Railway Co $137.43
CTC-A-TCanadian Tire Corp Ltd $130.65
CFP-TCanfor Corp $17.28
CS-TCapstone Mining Corp $1.28
CSH-UN-TChartwell Retirement Residences $10.30
CGG-TChina Gold International Resources Corp. $1.41
CL-TCresco Labs Inc. $10.13
CURA-TCuraleaf Holdings Inc. $12.46
EMP-A-TEmpire Co Ltd $35.85
EQX-TEquinox Gold Corp. $17.58
FSZ-TFiera Capital Corp $10.96
FRU-TFreehold Royalties Ltd $4.66
GIL-TGildan Activewear Inc $26.22
GWR-TGlobal Water Resources Inc. $15.85
GSY-Tgoeasy Ltd $69.87
GOLD-TGoldMining Inc. $2.62
XAU-TGoldMoney Inc. $2.91
GPR-TGreat Panther Silver Ltd $1.32
GCG-A-TGuardian Capital Group Ltd $22.52
GUY-TGuyana Goldfields Inc $1.82
HLF-THigh Liner Foods Inc $8.30
HNL-THorizon North Logistics Inc $5.07
HBM-THudBay Minerals Inc $5.51
III-TImperial Metals Corp $3.53
IFP-TInterfor Corp $17.14
KNT-TK92 Mining Inc. $7.25
KBL-TK-Bro Linen Inc. $33.52
LIF-TLabrador Iron Ore Royalty Corp $28.71
LNF-TLeon's Furniture Ltd. $16.00
LAC-TLithium Americas Corp $11.80
MOZ-TMarathon Gold Corporation $2.60
OSB-TNorbord Inc $45.60
OVV-TOvintiv Inc. $16.22
POU-TParamount Resources Ltd $3.23
PXT-TParex Resources Inc $19.29
PLC-TPark Lawn Corp. $29.33
PEY-TPeyto Exploration & Development Corp $2.96
PL-TPinnacle Renewable Holdings Inc. $6.30
PBL-TPollard Banknote Ltd. $18.35
RFP-TResolute Forest Products Inc. $5.05
RCH-TRichelieu Hardware Ltd $35.15
RBA-TRitchie Bros Auctioneers Inc $83.66
SEC-TSenvest Capital Inc. $142.00
TOY-TSpin Master Corp. $29.90
SII-TSprott Inc $55.90
SJ-TStella-Jones Inc $46.11
SRX-TStorm Resources Ltd. $1.80
TVE-TTamarack Valley Energy Ltd. $1.07
TOU-TTourmaline Oil Corp $17.30
TCW-TTrican Well Service Ltd $1.16
VCM-TVecima Networks Inc $12.28
VGCX-TVictoria Gold Corp. $18.87
WELL-TWell Health Technologies Corp. $5.16
WDO-TWesdome Gold Mines Ltd. $14.69
WFT-TWest Fraser Timber Co Ltd $70.81
WEF-TWestern Forest Products Inc $1.09
WCP-TWhitecap Resources Inc $2.85
Y-TYellow Pages Ltd $11.00
Negative Breakouts
ATZ-TAritzia Inc. $17.65
LABS-TMediPharm Labs Corp. $0.89
MSI-TMorneau Shepell Inc $28.50
QSR-TRestaurant Brands International Inc $71.78
WFC-TWall Financial Corp. $17.73

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