A new acquisition has moved the needle on Constellation Software (TSX:CSU) for Industrial Alliance Securities analyst Blair Abernethy, but not enough that the analyst is ready to recommend the stock.
On Tuesday, Constellation Software announced that it had acquired Quebec-based Acceo Solutions Inc. through its wholly-owned subsidiary N. Harris Computer Corp.
“Harris is looking forward to building upon our decade-long presence and commitment in and to Quebec and is excited to continue the journey of one of Quebec’s largest software enterprises — a journey that began almost 30 years ago. The Acceo software solutions are supported by a group of experienced and dedicated employees as well as relied upon by many loyal customers — we will be engaging with both to support them now and into the future,” said Harris CEO Jeff Bender.
Abernethy says he view this development as Constellation getting its groove back.
“We view this as an important acquisition for Constellation, which has struggled against competition to secure larger deals at a reasonable price in the past three years,” the analyst says.”We expect Constellation to continue to drive material revenue growth and steadily scale its operations over the next few years.”
In a research update to clients today, Abernethy maintained his “Hold” rating on Constellation Software, but raised his one-year price target on the stock from $680.00 to $700.00, implying a return of negative 10.9 per cent at the time of publication.
Abernethy thinks Constellation will generate EBITDA of $641.1-million on revenue of $2.46-billion in fiscal 2017. He expects those numbers will improve to EBITDA of $751.0-million on a topline of $2.90-billion the following year.
“Based on our estimates, in our view, CSU continues to trade at a relatively rich ~6.5x forward EV/recurring revenue multiple,” the analyst says.