Absolute Software’s Q3 results get thumbs up at Industrial Alliance

Industrial Alliance Securities analyst Blair Abernethy says Absolute Software’s (Absolute Software Stock Quote, Chart, News: TSX:ABT) third quarter results confirm his bullish thesis on the stock.

This morning, Absolute Software reported its Q3, 2016 results. The company earned (U.S.) $1.18-million on revenue of $21.7-million, a topline that was down 10 per cent from the $24.1-million the company posted in the same period last year.

“In Q3 we delivered quarter-over-quarter growth, led by strong performance in our targeted corporate and health care markets,” said CEO Geoff Haydon. “Additionally, we substantially advanced our product strategy. Most notably, we unveiled an important phase of our Persistence platform strategy, extending our patented technology to third party end point software solutions. We believe this initiative will open up substantial new revenue opportunities for Absolute, directly with enterprises, and through prospective new partnerships with independent software vendors.”

Abernethy notes that the quarter came is slightly above his expectations and says he is “incrementally encouraged” by the company’s progress.

“Post Q3, we are marginally increasing our sales contract and revenue estimates, and gross margin forecast,” says the analyst. “Our sales contract estimates for F2016 moves to $89M (prev. $84M) and for F2017 moves to $97M (prev. $93M). At this point, we are leaving our target price at C$11.00, based on a blended EV/Sales, P/FCF, and DCF approach (see below). Absolute is trading at ~1.6x EV/Sales (on F2016E), which we view as attractive relative to its growth potential, recurring revenue base, and comparable SaaS multiples.”

In a research update to clients today, Abernethy maintained his “Buy” rating and one-year price target of $11.00 on Absolute Software, implying a return of 72.7 per cent at the time of publication, including dividend.