Altus Group gets new $35.00 price target at National Bank Financial

Following the company’s first quarter results, National Bank Financial analyst Richard Tse has raised his price target on Altus Group (Altus Group Stock Quote, Chart TSX:AIF).

This morning, Altus Group reported its Q1, 2019 results. The company lost $435,000 on revenue of $128.0-million, a topline that was up 2.7 per cent over the same period last year.

“We’re pleased with the robust financial and operating performance in the first quarter, providing us with a good start to the year,” CEO Robert Courteau said. “The momentum we have had over the last three quarters with strong, double-digit recurring revenue growth at Altus Analytics is a solid indicator of progress against our strategic initiative to drive a higher mix of recurring revenues. Given our leading market position and the strength of our pipeline of appeals, we remain well positioned for our Property Tax business to deliver record revenues this year.”

Tse summarized the quarter and why he came away more bullish about Altus Group.

“Following a number of quarters of variability, Altus reported what we’d consider to be in-line fiscal Q1 results this evening,” the analyst said. “Overall, the results were consistent with the expectations laid out in our quarterly preview. In that preview, we pointed to continued softness in the Company’s Property Tax segment. That played out in Q1 with a -8.1% decline in Property Tax care of the continued overhang from procedural changes in Ontario and the UK. With respect to Altus Analytics, the Company’s technology segment, it also played out consistent with our preview. While growth came in at 15.4%, if we strip out contributions from acquisitions and FX, revenue growth looked more like ~6.5%. Yet, we think that growth rate will accelerate as Altus transitions its Analytics base towards Cloud. The caveat that investors need to be aware of and laid out in our recent note “Still Early in AE Transition” is that the campaign to convert its software / data products to the Cloud will likely result in some changes to the revenue base as perpetual licenses to subscription comes with an impact on revenue given different business models. In our view, that creates some risk in this name as investors digest the model / valuation impact of those changes. In our view, it should create an upward valuation re-rating as subscription-based revenue is generally ascribed a higher valuation given their recurring and predictable nature. The reality is that Altus’s recurring revenue base already stands at $36.4 mln today, or 77.8% of Altus Analytics revenue, but the shift towards full Cloud has the potential to increase that meaningfully by driving incremental revenue opportunities that come with platforms. Bottom line, we don’t think the quarterly volatility is behind us –but we also like the path set out beyond the short term, which is why we reiterate our Outperform rating with an increased target to $35.”

The analyst’s new $35.00 target, which he today raised from $30.00, represented a return of 28 per cent at the time of publication.

Tse thinks AIF will post EBITDA of $89.3-millio on revenue of $561.1-million in fiscal 2019. He expects those numbers will improve to EBITDA of $108.5-million on a topline of $593.7-million the following year.