Absolute Software Corp. is a buy, PI Financial says

The pieces are starting to come together for Absolute Software Corp. (Absolute Software Stock Quote, Chart, News: TSX:ABT), says analyst David Kwan of PI Financial, who in an earnings update on Tuesday reiterated his “Buy” recommendation with a target decrease of $0.50 to $8.25.

Security and data risk management company Absolute Software reported its Q3 fiscal 2018 financials on Monday, with revenues of $23.3 million, a one per cent increase year over year and quarter over quarter. Adjusted EBITDA for the quarter was $2.4 million, compared to $2.3 million in Q3/FY17.

Kwan says that weakness in the company’s Education vertical impacted growth in its Enterprise space, while Adj. EBITDA margins rebounded nicely despite flat revenue, coming in at 10.3 per cent.

The analyst says that management’s minor tweaks to its FY18 guidance, including slightly reduced revenue projections and an increase to the low end of its operating cash flow.

“ABT is showing signs of delivering on one part of its longer-term goal of 20 per cent revenue growth and 20 per cent Adm. EBITDA margins, with Adj> EBITDA margins rebounding to the double-digit range in recent quarters despite the limited progress on their revenue growth target, as revenue growth has remained in the low single-digit range,” says Kwan.

“Although patience is required, as double-digit revenue growth may be many quarters away, we believe the valuation is attractive as is the 4.5 per cent dividend yield,” he says.

The analyst has reduced his FY18 revenue forecast from $94.4 million to $93.2 million and his FY19 revenue forecast from $103.8 million to $98.8 million. His Adj. EBITDA for FY18 has increased from $8.0 million to $8.5 million and his Adj. EBITDA for FY19 has decreased from $14.1 million to $12.4 million.

Kwan’s $8.25 target represents a projected return on investment of 16.5 per cent at the time of publication.