There’s still upside in Enghouse Systems, says Echelon Wealth Partners

Following the company’s first quarter results, Echelon Wealth Partners analyst Ralph Garcea is still bullish on Enghouse Systems (Enghouse Systems Stock Quote, Chart, News: TSX:ENGH).

Yesterday, Enghouse reported its Q1, 2017 results. The company earned $11.73-million on revenue of $78.8-million, a 5.9 per cent increase over last year first quarter topline of $74.4-million. Enghouse concurrently announced it would hike its dividend by 14 per cent to $0.16 a share.

Garcea notes that Enghouse bested his expectations on the bottom line, but the sales figure was a slight miss of the $80.2-million he had modeled. Overall, the analyst says Enghouse’s growth-by-acquisition model continues to work.

“ENGH has an established track record of value creation through acquisitions (33 in the last 18 yrs,) -averaging 3-6 deals per year over the last few years. Although we haven’t seen any deals yet from ENGH this FY, economic factors are favourable for acquisitions especially for small cap companies. ENGH targets companies in the $5-50M revenue range preferably with: (1) strong recurring revenue; (2) geographic, product or scale expansion; (3) mission critical solutions; and (4) high barriers to entry. The objective is for a cash payback within five to six years.”

In a research update to clients today, Garcea maintained his “Buy” rating and one-year price target of $64.00 on Enghouse Systems, implying a return of 17 per cent at the time of publication.

Garcea thinks Enghouse will post EBITDA of $97.46-million on revenue of $330.5-million in fiscal 2017.