Alithya Group. Purchase, Promote or Maintain?

Alithya Group (Alithya Group Inventory Quote, Chart, Information, Analysts, Financials TSX:ALYA) delivered one other stronger-than-expected quarter, prompting Ventum Capital Markets analyst Rob Goff to make “superb changes” to his estimates whereas sustaining his “Purchase” ranking and C$2.85 goal in a Nov. 17 replace.

Goff mentioned Q2/F26 outcomes underscored the corporate’s accelerating U.S. momentum, widening margins, and bettering working combine, which he believes usually are not but mirrored within the share value.

Alithya reported Q2/F26 income of $124.3-million, gross revenue 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 income, $39.8-million in gross revenue and $10.8-million in Adjusted EBITDA. As in Q1, the upside was pushed by U.S. enterprise transformation work, stronger assist exercise, and continued margin enlargement.

Goff made solely modest revisions to his mannequin, trimming Canadian income assumptions to replicate the deliberate wind-down of lower-margin home enterprise and the absence of a serious contract accomplished in Q3/F25. He raised U.S. income estimates after one other outperformance within the area. His revised F2026 forecasts now sit at $508.9-million in income, $172.2-million in gross revenue and $53.5-million in Adjusted EBITDA, basically in step with consensus. He continues to mannequin above-consensus margins and emphasised that the energy in U.S. operations “is underappreciated.”

Within the quarter, he mentioned, “We’re optimistic that the ~17% natural progress in U.S. revenues will construct consciousness along with U.S. revenues shifting to 50.8% of general revenues on the quarter from 42.0% YoY.”

In Canada, income declined 7.4% year-over-year to $55.2-million, an enchancment from the 8.5% decline in Q1/F26. Goff mentioned the development stays constant along with his view that the home enterprise is stabilizing beneath the noise of accomplished contracts and the intentional discount of low-margin authorities work. Monetary companies posted one other quarter of year-over-year progress.

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

He mentioned administration’s remark that “AI adoption is a particular tailwind the place firms look to undertake ERP platforms and strengthen cloud capabilities so as to have the info capabilities to successfully leverage AI.” He mentioned that the shift in combine 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 foundation.”

Goff additionally pointed to Alithya’s shopper base, together with 11 of the highest 25 Fortune 100 firms, as proof of its positioning in large-scale digital transformation markets. He mentioned that near-shore labour now represents 13% of the workforce, up from roughly 6% 18 months in the past, strengthening supply capability at decrease value.

Administration reported that financial uncertainty continues to shift purchasers towards smaller, staged RFPs, which weighed on billings. Bookings fell to $90.9-million, a book-to-bill of 0.73, although Goff referred to as the sequential decline seasonal, in line with historic patterns.

Goff mentioned M&A stays a practical lever given extra beneficial valuations within the consulting and IT companies sector. Two acquisitions up to now 9 months have broadened Alithya’s portfolio throughout Microsoft, Oracle and Salesforce ecosystems.

“We’re inspired that administration will construct on the success of current on-strategy, accretive acquisitions,” he mentioned, including that improved trade valuation circumstances “are a optimistic mild on the potential.”

He reiterated that the funding case is grounded within the structural shift of Alithya’s enterprise towards higher-margin U.S. work, elevated labour effectivity, and free money circulate energy.

“We imagine the energy of U.S. natural 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 each discounted in present valuations. We additional observe that U.S. working earnings represented 62.9% of the quarter’s complete from 45.0% YoY.”

He additionally highlighted the influence of smart-shoring and tighter value controls.

“The F2025/26 FCF (pre-working capital) yield at 25.7%/27.4% limits draw back danger whereas supporting flexibility for share repurchases and constructing assets to fund acquisitions the place money is the first forex.”

Goff up to date his valuation assumptions accordingly. His revised mannequin now forecasts Adjusted EBITDA of C$53.5-million on income of C$508.9-million in fiscal 2026, in contrast 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 income 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 goal and reiterated that Alithya affords a lovely worth profile given the tempo of U.S. progress, margin enlargement and free money circulate yield.

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