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Altus Group’s shift to the cloud has potential, National Bank says

Altus Group, AIF Stock

A move to the cloud could pay off for Altus Group (Altus Group Stock Quote, Chart TSX:AIF) but it also opens up certain risks, says National Bank Financial analyst Richard Tse.

On Wednesday, Altus hosted an investor call to discuss a change in its Altus Analytics division. The company says it will embrace a full cloud offering, a decision that does not surprise Tse.

“Those following Altus will know AA has been in transition for the past year with the Company making meaningful investments into technology – in our view, it was already laying the foundation for the shift to Cloud and the potential valuation re-rating benefits that come with it,” the analyst says. “No doubt a shift to Cloud comes with much potential. Yet, it’s important to note that the timeline is 5-years out and as such, it comes with incremental execution risk. In the interim, we continue to use a sum-of-the-parts valuation model to derive our target price.”

In a research update to clients today, Tse maintained his “Outperform” rating and $35.00 one-year price target on Altus Group, implying a return of 14 per cent at the time of publication.

Tse thinks AIF will post EBITDA of $78.1-million on revenue of $561.1-million in fiscal 2019. He expects those numbers will improve to EBITDA of $89.9-million on a topline of $611.0-milion the following year.

“Based on our math, in order to achieve the target of $400 mln Analytics revenue by 2023 while maintaining recurring revenue at above 90% of total, the recurring revenue stream needs a much faster growth rate (26%-32%) in order to compensate the declines in non-recurring stream while achieving the 17% CAGR implied in the target,” the analyst adds.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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