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Halogen Software is a buy, says Cantor Fitzgerald Canada

Halogen Software

 

Halogen Software
Cantor Fitzgerald Canada analysts Tom Liston and Justin Kew point out that 90% of Halogen Software’s revenue is recurring.

Cantor Fitzgerald Canada analysts Tom Liston and Justin Kew say recent IPO Halogen Software (Halogen Software Stock Quote, Chart, News: TSX:HGN) is addressing a talent management space that is large and under-penetrated, and the stock remains a value, despite a bump in price since its IPO.

This morning the analysts initiated coverage of Halogen with a BUY rating and $18.25 one-year target. The pair listed the major themes that support their idea that the company’s stock has upside.

Halogen’s revenue, they say, is highly predictable because 90% of it is recurring. And the company’s growing customer list is highly diversified, with its top five customers contributing just 6% of total revenue. They believe the company is a natural to win business in the talent management vertical because its solution is highly regarded; Gartner, they point out, ranks Halogen in its “visionary” quadrant; and Forrester ranks the solution as a “strong performer”.

In May, Ottawa-based Halogen, which was formed in 2001, went public on the TSX, raising just over $50-million by selling 4,365,218 shares at $11.50 each. The stock closed its first day at $13.20 and has since surpassed the $15 mark. In early June, Halogen exercised its “greenshoe” over-allotment option, issuing 720,000 additional shares at $11.50 to raise an additional $8.3-million.

Liston and Kew point out that just 12% of companies have currently implemented talent management tools, and that number is even lower in the mid-market part of the vertical, where Halogen plays. These are companies that employ between 100 and 10,000 people. The analysts believe that the size of this market is approximately $2.7-billion per year in the United States alone.

The Cantor Fitzgerald Canada analysts say their target on Halogen Software is based on 5.4x their estimate of 2014 EV/revenue and 4.4x 2015 EV/revenue. They note the company’s peer group is trading at 6.5x 2014 EV/revenue.

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About The Author /

Nick Waddell
Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

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