Stifel Nicolaus analyst Blair Abernethy says a slowing pace of decline in PC sales is a positive for Absolute Software (TSX:ABT), but the company’s real upside comes from its increasing leverage to mobile devices such as the iPad.
Last Wednesday, IDC released it quarterly data on PCs and the numbers, while seemingly dismal, were actually stabilizing. Shipments of PCs declined by 11.4% year-over-year, better than the 13.9% YOY decline in Q1. IDC says it expects further improvement in the second half of this year.
Abernethy says he believes Absolute will ride a tailwind of new sales in the second half of this year and into next as a result of its new partnerships with Samsung and Apple. He thinks the use of tablets in the education vertical, in particular, will return that segment to growth in 2014.
In a research update to clients this morning, Abernethy reiterated his BUY recommendation and $9 target on Absolute Software. He points out that the Vancouver-based company is trading at 2.5x FY14 EV/S, which is well below its U.S. comparable Software as a Service peers.
Absolute’s recent acquisition of data security and data loss prevention provider Palisade Systems, says Abernethy, adds functionality to existing product offering and increases its relevance in key customer verticals that will also help it expand away from the useful but fading foothold it leveraged in the PC market.
Abernethy says Absolute maintains a strong balance sheet, which allows it to continue with its normal course issuer bid and have the flexibility to selectively acquire complementary technologies. The analyst expects that Absolute will report sales contracts that total $98.3-million in fiscal 2014, and generate operating cash flow of $22.2-million. In the company’s upcoming Q4, 2013, due in early August, he expects Absolute will earn two cents a share of revenue of $20.8-million.