Halogen Software on the path to profitability, says Laurentian

Halogen Software’s (Halogen Software Stock Quote, Chart, News: TSX:HGN) upcoming first quarter should show progress with regards to the company’s goal to reach positive EBITDA for the first time, says Laurentian Bank Securities analyst Nick Agostino.

In a research update to clients today, Agostino maintained his “Buy” rating and one-year price target of $11.00 on Halogen Software, implying a return of 30.6 per cent at the time of publication.

Agostino says he we will be focused on the company’s international growth and its sales and cost efficiency improvements. He believes that recent soft results internationally can be attributed mainly to poor execution and personnel turnover. He says the new management’s revised focus should begin to positively impact international growth and profitability. He thinks the company can become more efficient on the sales front by focusing on pipeline optimization and from new training, quotas and compensation structure.

The analyst says the recent upswing in the company’s shares was the result of a better outlook from management following its fourth quarter results.

“We believe the recent share price appreciation (+20% since Q4/15 results on Feb. 25) was partially on the back of this guidance,” says Agostino. “Despite potential headwinds from the Q1 C$/US$ strengthening (HGN reports in US$), the YoY C$ depreciation still provides a favourable benefit to HGN’s EBITDA. As such we look for Q1 EBITDA of US$0.2M vs. –US$0.3M YoY, and consensus of – US$0.2M. Q1 results should further confirm the path to profitability, with EBITDA improving QoQ since Q2/15.”

Agostino thinks Halogen will post Q1 revenue of (U.S.) $17.5-million, which he notes is in-line with consensus and the company’s guidance.

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