Calian Group upgraded to “Buy” at Echelon Wealth

A fourth quarter that was better than expected has Echelon Wealth Partners analyst Ralph Garcea upgrading Calian Group (Calian Group Stock Quote, Chart, News: TSX:CGY).

On Wednesday, Calian Group reported its fourth quarter and fiscal 2017 results. In the fourth quarter, the company earned $4.3-million on revenue of $72.3-million, a topline that was up five per cent over the same period last year.

“Once again, the team has delivered solid results for our shareholders,” said CEO Kevin Ford. “I am extremely proud of their efforts in the quarter and full-year results. We continue to see progress across all elements of our four-pillar growth strategy. Equally, I am very proud of our continued high customer satisfaction metrics across all of our services again this year — the Calian team is passionate about ensuring we are adding value to our customers objectives.”

Garcea notes that the quarter beat his and the street consensus for EBITDA, earnings, and revenue. The company’s gross margin figure of 19.6 per cent also topped his 18.0 per cent estimate. The analyst broke down the quarter.

“The mix of revenues in the quarter helped the margin beat on gross margin and EBITDA, especially in the Systems Engineering Division (SED) where higher labour components were delivered,” Garcea explains. “CFOPS excluding working capital was $6.7M (EWP: $4.2M) with FCF of ($1.2M) or ($0.15)/sh. CGY signed $932M worth of contracts in the quarter and book-to-bill came in at 12.9x. Backlog as at quarter end was $1,261M, up from $401M q/q. CGY upped its credit facility last quarter from $10M to $40M to facilitate organic and inorganic growth with comfort levering up to 1x EBITDA. F2018 guidance was provided with revenue expected between $290-310M and EPS between $1.90-2.20. Guidance was higher than our expectations of $280M, thus we are reflecting management’s expectations into our new estimates and anticipate continued execution.”

In a research update to clients today, Garcea upgraded Calian Group from “Hold” to “Buy” and raised his one-year price target on the stock from $30.00 to $40.00, implying a return of 21 per cent at the time of publication.

Garcea thinks Calian Group will generate EBITDA of $25.0-million on revenue of $301.0-million in fiscal 2018. He expects those numbers will improve to EBITDA of $27.0-million on a topline of $314.0-million the following year.