Laurentian lowers price target on Halogen Software

Mixed fourth quarter guidance has Laurentian Bank Securities analyst Nick Agostino revising his estimates for Halogen Software (Halogen Software Stock Quote, Chart, News: TSX:HGN) and cutting his target price on the stock, though the analyst has maintained his “Buy” rating on it.

Yesterday, Halogen Software reported its Q3, 2016 results. The company earned (U.S.) $794,000 on revenue of $17.9-million, a topline that was eight per cent better than the same period last year. Halogen also provided guidance for its fourth quarter, saying it expected fiscal 2016 EBITDA would come in at between $7.0 and $7.5-million, and that revenue would range between $71.8 and $72-million.

“Our Q3 results were highlighted by 12-per-cent recurring revenue growth and continued strong adjusted EBITDA performance of $2.9-million in the quarter,” said CEO Les Rechan. “We are excited about the market opportunity in front of us and our vision for the future of performance-led talent management solutions for the mid-enterprise. We will continue to focus on profitable growth and improving our customer acquisition velocity and retention in Q4 and beyond.”

Agostino says Halogen’s third quarter was solid, but describes the guidance as “mixed”, with EBITDA increased, but sales lowered. He characterized the company’s current strengths and weaknesses.

“While we are pleased by the EBITDA beat, solid CF, growing deal pipeline despite reduced S&M expenditures, and raised 2016/2017 EBIDTA guidance, sales challenges remain a focus,” says the analyst. “HGN provided dollar retention rates for the first time with Q3/16 at 101.1%, flat QoQ but down from 103.9% YoY; 3-year range 101%-106%. What is evident is the QoQ volatility, as high as 440bps in Q3/Q4 2014. To manage expected Q4/16 slippage below 100%, HGN plans to introduce new tool kits and its next generation talent management suite, as well it plans to make better use of client data and educate its client base/prospects on its superior product offering when compared to integrated HRIS platforms. The company remains committed to additional partnerships to augment its current offering (incl. data analytics) and, if necessary, leverage HRIS partnerships to target clients requesting a full end-to-end solution.”

In a research update to clients today, Agostino maintained his “Buy” rating on Halogen Software, but lowered his one-year price target on the stock from $12.00 to $11.50, implying a return of 15.1 per cent at the time of publication.

Agostino thinks Halogen will post EBITDA of (U.S.) $7.5-million on revenue of $71.9-million in fiscal 2016. He expects these numbers will improve to EBITDA of $9.7-million on a topline of $75.8-million the following year.

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