Better than expected margin leverage and an active pipeline of M&A opportunities has caused Global Maxfin Capital analyst Ralph Garcea to raise his target on Constellation Software (TSX:CSU).
On Thursday, Constellation reported its Q3, 2014 results. The company earned (US) $31.92-million on revenue of $419-million, up 33% over the $316-million topline the company posted in the same period last year.
Garcea notes that the EBITDA margins of Constellation’s acquisition of Netherlands-based Total Specific Solutions rose from 5% in the first quarter of 2014 to 18% in the third quarter, helping Constellation’s overall margins climb from 18% to 25% in the same period. Constellation acquired TSS last December for €240-million.
The analyst says there are several catalysts on the horizon for Constellation, including the potential announcement of new platform acquisitions, dividend boosts, and buy out interest from private equity groups. And despite the company’s meteoric rise, Garcea notes that Constellation is currently trading at an EV/Sales of 3.1x and EV/EBITDA of 15.7x versus industry comparables at 4.1x and 12.0x, respectively.
In a research update to clients this morning, Garcea adjusted his outlook on Constellation upward.
“With better than expected margin leverage, and an active M&A pipeline, we are increasing our TP to C$370 from C$350,” explained Garcea, who maintained his “Strong Buy” rating on the stock.
At press time, shares of Constellation Software were up 3.5% to $327.20.