Alithya Group. Buy, Promote Or Keep?

Alithya Group (Alithya Group Stock Quote, Chart, Data, Analysts, Financials TSX:ALYA) delivered one different stronger-than-expected quarter, prompting Ventum Capital Markets analyst Rob Goff to make “very good modifications” to his estimates whereas sustaining his “Buy” rating and C$2.85 objective in a Nov. 17 change.

Goff talked about Q2/F26 outcomes underscored the company’s accelerating U.S. momentum, widening margins, and bettering working mix, which he believes often usually are not however mirrored throughout the share worth.

Alithya reported Q2/F26 revenue of $124.3-million, gross income of $42.8-million and Adjusted EBITDA of $12.8-million, beating Goff’s forecasts of $122.2-million, $38.5-million and $11.0-million, respectively. Pre-quarter consensus had anticipated $124.2-million in revenue, $39.8-million in gross income and $10.8-million in Adjusted EBITDA. As in Q1, the upside was pushed by U.S. enterprise transformation work, stronger help train, and continued margin enlargement.

Goff made solely modest revisions to his model, trimming Canadian revenue assumptions to duplicate the deliberate wind-down of lower-margin dwelling enterprise and the absence of a severe contract achieved in Q3/F25. He raised U.S. revenue estimates after one different outperformance throughout the space. His revised F2026 forecasts now sit at $508.9-million in revenue, $172.2-million in gross income and $53.5-million in Adjusted EBITDA, mainly consistent with consensus. He continues to model above-consensus margins and emphasised that the vitality in U.S. operations “is underappreciated.”

Inside the quarter, he talked about, “We’re optimistic that the ~17% pure progress in U.S. revenues will assemble consciousness together with U.S. revenues shifting to 50.8% of normal revenues on the quarter from 42.0% YoY.”

In Canada, revenue declined 7.4% year-over-year to $55.2-million, an enchancment from the 8.5% decline in Q1/F26. Goff talked about the event stays fixed alongside together with his view that the house enterprise is stabilizing beneath the noise of achieved contracts and the intentional low cost of low-margin authorities work. Financial firms posted one different quarter of year-over-year progress.

In opposition to this, U.S. revenue rose 17.3% year-over-year to $63.1-million, representing 50.8% of consolidated revenue, with U.S. working margins of 21.9%. Goff highlighted administration’s ongoing pricing self-discipline and its capability to leverage near-shore labour to meet demand for ERP and digital transformation work.

He talked about administration’s comment that “AI adoption is a specific tailwind the place corporations look to undertake ERP platforms and strengthen cloud capabilities in order to have the information capabilities to efficiently leverage AI.” He talked about that the shift in mix is central to the revaluation argument: “U.S. revenues/working earnings have moved to 50.8%/62.9% of Q2/F26 outcomes from 42.2%/45.0% on a YoY basis.”

Goff moreover pointed to Alithya’s shopper base, along with 11 of the very best 25 Fortune 100 corporations, as proof of its positioning in large-scale digital transformation markets. He talked about that near-shore labour now represents 13% of the workforce, up from roughly 6% 18 months previously, strengthening provide functionality at lower worth.

Administration reported that monetary uncertainty continues to shift purchasers in direction of smaller, staged RFPs, which weighed on billings. Bookings fell to $90.9-million, a book-to-bill of 0.73, though Goff known as the sequential decline seasonal, consistent with historic patterns.

Goff talked about M&A stays a sensible lever given additional helpful valuations throughout the consulting and IT firms sector. Two acquisitions thus far 9 months have broadened Alithya’s portfolio all through Microsoft, Oracle and Salesforce ecosystems.

“We’re impressed that administration will assemble on the success of present on-strategy, accretive acquisitions,” he talked about, together with that improved commerce valuation circumstances “are a optimistic delicate on the potential.”

He reiterated that the funding case is grounded throughout the structural shift of Alithya’s enterprise in direction of higher-margin U.S. work, elevated labour effectivity, and free cash flow into vitality.

“We think about the vitality of U.S. pure progress at ~17% on the quarter and the rising weight of U.S. revenues at 50.8% on the quarter (from 42.0% YoY) are every discounted in current valuations. We further observe that U.S. working earnings represented 62.9% of the quarter’s full from 45.0% YoY.”

He moreover highlighted the affect of smart-shoring and tighter worth controls.

“The F2025/26 FCF (pre-working capital) yield at 25.7%/27.4% limits draw again hazard whereas supporting flexibility for share repurchases and setting up belongings to fund acquisitions the place cash is the primary foreign exchange.”

Goff updated his valuation assumptions accordingly. His revised model now forecasts Adjusted EBITDA of C$53.5-million on revenue of C$508.9-million in fiscal 2026, in distinction with earlier estimates of C$55.0-million and C$509.9-million. For fiscal 2027, he now expects Adjusted EBITDA of C$57.5-million on revenue of C$541.6-million, down from C$60.6-million and C$539.0-million beforehand.

He maintained his DCF-based C$2.85 one-year objective and reiterated that Alithya affords a beautiful price profile given the tempo of U.S. progress, margin enlargement and free cash flow into yield.

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