Absolute Software (TSX:ABT) has hinted at its potential but the company’s mixed record on execution has held it back, says National Bank Financial analyst Richard Tse.
On Thursday, Absolute Software reported its Q4 and fiscal 2017 results. In the fourth quarter, the company lost five cents a share on revenue of $23.2-million, five per cent better than last year’s fourth quarter topline figure.
“Over the course of fiscal 2017, we made significant progress on the execution of our long-term growth and profitability objectives, including the achievement of 8-per-cent commercial recurring revenue growth. We also began to realize the benefits of sustained R&D (research and development) investments with the introduction of new enterprise-class solutions that address urgent customer demands,” said CEO Geoff Haydon. “The introduction of new capabilities such as always-connected IT asset management, self-healing and mobile endpoint security, and continuous data protection drove customer expansion and the acquisition of prominent new customers. It also led to a significant increase in our pipeline, positioning us for further expected growth and stronger expected cash flow in fiscal 2018.”
Tse says he would describe the results as “mixed”, but says there is one potential out for investors.
“There’s no doubt Absolute has an opportunity for growth; however, we believe the protracted record on execution offsets that potential upside and when it comes to the fiscal Q4 results and outlook – it’s unclear as to whether the Company will achieve its long-term model of +20% top-line growth and +20% EBITDA margins,” the analyst says. “On that note, we think the stock is reasonably valued. All in, we believe the Q4 results and outlook are still not entirely convincing that we’ll see Absolute on a course towards double-digit growth in the foreseeable future despite a broadening product portfolio with potentially promising products such as Absolute Reach, a new custom query and remediation feature that will allow subscribers to detect, understand and remediate vulnerabilities across endpoints on-demand. That said, we believe the risk profile is balanced by what’s been an active market for PE players in Canadian Tech which means that Absolute could be an attractive target given the cash flow potential opportunities available to a financial buyer – that’s why we upgraded ABT back in May. As for the Q4 results and outlook, we see top-line revenue growth of 5.3% and a return to profitability in H2/F18.”
In a research update to clients today, Tse maintained his “Sector Perform” rating and one-year price target of $8.00 on Absolute Software, implying a return of four per cent at the time of publication.
Tse thinks Absolute will post EBITDA of $8.6-million on revenue of $97.3-million in fiscal 2018.