Halogen Software (TSX:HGN) will continue to grow its topline aggressively for a couple years, and will only shift its focus to the bottom line when revenue growth slows, says Cantor Fitzgerald analyst Justin Kew.
Yesterday, after market, recent-IPO Halogen reported its Q2, 2013 results. The company lost (U.S.) $2.73-million on revenue of $10.1-million, up 26% from the same period a year prior.
CEO Paul Loucks said the quarter was about growth.
“We’re pleased with our strong progress in the second quarter,” he said. “We continued to deliver high growth rates in our recurring revenue thanks to a combination of attracting new customers and generating more revenue from our existing customers, who continued to renew with us at a rate greater than 90 per cent, reflecting the quality of our offering and our world-class customer experience.”
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Kew says he expects Halogen will continue its land grab for some time, and will grow revenue aggressively to about $71-million by fiscal 2015. He thinks EBITDA margins will creep up during that time, but won’t be a focus of management until revenue growth slows. The Cantor Fitzgerald analyst believes that Halogen’s business can support long-term EBITDA margins of more than 30%. At $70-million in revenue, he notes, the company will support EBITDA of more than $21-million.
In a research update to clients this morning, Kew maintained his BUY rating and $18.25 one-year target on Halogen, implying a 22% return.