Altus Group is building momentum, says National Bank

Real estate software and services company Altus Group (Altus Group Stock Quote, Chart, News TSX:AIF) came out with a strong quarter last week, but it was a recent meeting with management and investors that has National Bank of Canada Financial Markets analyst Richard Tse talking up the company’s building momentum.

In a research update to clients on Wednesday, Tse reiterated his “Outperform” rating and $40.00 target price for AIF, saying that an upward valuation re-rating could be on the horizon.

Toronto-based Altus on August 8 reported its second quarter ended June 30, 2019, coming in with consolidated revenues of $153.7 million, up 14.5 per cent year-over-year and earnings of $13.32 million. Adjusted EBITDA was $31.0 million, up 30.3 per cent year-over-year.

Management praised the company’s record performance in its global Property Tax business for the EBITDA strength, which the company chalked up to past investment in the segment along with excellent execution. In July, the company launched its cloud-based ARGUS Enterprise in its Analytics segment, which Altus hopes will become a global asset and investment management platform for the CRE industry.

Tse says he came away from his investor meeting believing that Altus is growing momentum across both its Tax and Tech segments.

“With respect to Tech (Altus Analytics), we didn’t appreciate the scale of effort that’s gone into the Company’s shift towards the Cloud,” writes Tse. “And in Tax, we didn’t appreciate the investment dollars behind it that builds in potential operating leverage upside. Together, it appears that much of (investment) heavy lifting is behind the Company and it’s our view that execution on those investments will drive an upward valuation re-rating in AIF. We believe there continues to be building momentum with respect to the growth drivers to drive an upward valuation re-rating as we look ahead despite the short-term execution risks related to AA’s Cloud transition.”

Commenting on Altus’ Tax segment, Tse pointed out that the company has experienced growth rising from 11.4 per cent in 2018 to 19.6 per cent in 2019, while for Analytics, he sees incremental revenue opportunity from the shift to the cloud in that it offers a uniform platform to upsell some of the company’s add-on solutions.

Going forward, Tse thinks that AIF will generate 2019 EBITDA of $87.7 million on revenue of $568.3 million and 2020 EBITDA of $96.0 million on a top line of $617.5 million. His current $40.00 target represents a projected 12-month return of seven per cent at the time of publication.

Altus Group has been a strong climber over 2019, with its share price rising 60 per cent year-to-date. Over the past 12 months, AIF is up 24 per cent.

Altus officially launched the cloud-enabled version 12 of ARGUS Enterprise on July 31, with company president Carl Farrell saying, “The commercial real estate industry is challenged with how to get more from their data and create a more direct line of sight from investments and investors to results and returns. Taking AE to the cloud provides our customers with greater insights, flexibility and investment visibility through more extensive collaboration and better utilization of their data.”