Absolute Software is still a work in progress: National Bank Financial

Following the company’s second quarter results, National Bank Financial analyst Richard Tse remains lukewarm on Absolute Software (Absolute Software Stock Quote, Chart TSX:ABT).

On Monday, ABT reported its Q2, 2019 results. The company earned (US) $24.4-million on revenue of 24.4-million, a topline that was up five per cent over the same period last year.

“I am very pleased to have joined Absolute at such an exciting time for the company as well as in the broader end point security market,” CEO Christy Wyatt said. “End point resilience is an enterprise requirement that Absolute is uniquely positioned to address together with our strategic OEM [original equipment manufacturing] partners. Our platform enables our unique resilience and intelligence capabilities that span across vendors and platforms to hundreds of millions of devices. These capabilities position us well for continued innovation to deliver against this critical customer need through focused execution.”

Tse says the quarter was essentially in-line with his expectations, noting margin expansion from improved operating efficiencies. But he says the stock is firmly residing in “show me” territory.

“Fundamentally, we believe ABT’s valuation is essentially pricing in the outlook and new CEO appointment,” the analyst explains. “In our view, we see no imminent catalyst to accelerate growth over our forecast period despite what may be speculation – that ignores the historical track record. We’re open to considering a change in view; for now, given all the above, we’re maintaining our Sector Perform rating and target of C$9.00 (unchanged), which implies a valuation of 2.5x EV/Sales on our revised F2019E.”

Tse thinks ABT will post EBITDA of (US) $16.5-million on revenue of $98.8-million in fiscal 2019. He expects those numbers will improve to EBITDA of $18.9-million on a topline of $104.5-million the following year.