With this morning’s news that Halogen Software (TSX:HGN) is in play, Industrial Alliance analyst Blair Abernethy thinks the company will fetch a price that is a premium over the more than 20 per cent bump the stock got today from the news.
This morning, Halogen announced it had formed a special committee in resposne to “significant interest from third parties to acquire the company”. After being halted, shares returned to trade up sharply.
Abernethy says that while Halogen has seen increased competition in the Human Capital Management (HCM) segment of late, it has continued to deliver on the bottom line. This is said, should make the company an attractive target.
“We continue to expect Halogen to deliver modest top line growth of ~8% this year and are forecasting 12% EBITDA margins,” says the analyst. “The Company remains a well-recognized and leading mid-market SaaS provider in the talent management market segment and has over 2,000 customers. We expect the Company would be of interest both from strategic SaaS players looking to expand in the mid-market and from private equity players that are attracted to recurring revenue business models. At this juncture, we believe a potential suitor may look to pay on the order of 2-3x EV/S for Halogen. The stock is currently trading at 1.7x EV/S on F2016E. Thus, we would expect that a potential bid could surface in the C$11.00-14.00 range.”
In a research update to clients today, Abernethy maintained his “Buy” rating and one-year price target of $12.00 on Halogen Software.
The analyst thinks Halogen will generate Adjusted EBITDA of $7.4-million on revenue of $71.9-million in fiscal 2016. He expects these numbers will improve to EBITDA of $9.6-million on a topline of $77.7-million the following year.