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Alithya Group: Key Concerns Remain Following A Mixed Quarter

Mar. 02, 2021 3:56 PM ETAlithya Group Inc. (ALYA), ALYA:CA1 Comment


  • Alithya delivered strong top-line results in FQ3 ‘21 on the back of strength in the Canadian business.
  • However, with expenses on the rise, near-term margins are a key concern.
  • Elevated debt levels could also constrain M&A-led growth in future quarters.
  • Relative to its IT services peers, I think shares are fairly valued.

Alithya Group (NASDAQ:ALYA) recently reported a mixed set of FQ3 ‘21 results. On the one hand, the sequential sales growth was a positive surprise considering the seasonally weak December quarter (although the pent-up demand likely helped somewhat). However, many of the same challenges remain – in addition to its large Canadian customers transitioning away from legacy staffing services, its Oracle customers in the US are also in the midst of an ongoing transition to the cloud. As a result, margins have been a drag, and FQ3 ’21 showed little sign of this changing anytime soon. Yet, shares appear to have baked in a relatively optimistic scenario based on the valuation, and with the current EV/EBITDA multiple at a premium to peers, I am neutral.

Canada Leads the Top-Line Recovery in FQ3 ‘21

For its latest quarter, Alithya’s revenue improved c. 3% Q/Q and c. 7% Y/Y on the back of large contract renewals and the benefit from prior acquisitions, along with the release of some pent-up demand from prior Covid-19-led slowdowns. Notably, bookings stood at an impressive c. $126 million (implying a c. 1.9x book-to-bill ratio), although I would note that the headline number benefited from a two-year renewal from Desjardins, which likely added c. $40-50 million in bookings for the quarter. In the US, however, challenges remain, with utilization still below the c. 75-80% target in FQ3 ’21 on headwinds across both its Oracle practice and on legacy projects.

Source: Alithya Group FQ3 ’21 Presentation Slides

Nonetheless, top-line trends in the Canada business continued to improve, rising c. 9% Y/Y and 3% Q/Q, as the stabilization at several “core” longer-term Canadian customers (including the multi-year renewal with Desjardins) boosted results. Another recent notable win is AGA Benefit Solutions, which is utilizing Alithya’s Digital Solutions Center for the consolidation of back-end client and administrative data, along with the development of a modernized member

This article was written by

Analyst with a keen interest in the global markets, always sifting through company filings in search of compelling opportunities. Approach is heavily centered on the notion that one needs to be non-consensus right in making investment decisions. A keen follower of value investing legends such as Peter Cundill, Seth Klarman, and more recently, Rupal Bhansali.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (1)

Good take. This is one of the better IT Services plays but I'd probably wait for a pullback.
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