Absolute Software is built to survive COVID-19, says PI Financial

Ahead of third quarter results from Canadian tech name Absolute Software (Absolute Software Stock Quote, Chart, News TSX:ABT), PI Financial analyst David Kwan is sticking with his rating and estimates, saying in a Tuesday update that the endpoint security company is relatively well-positioned to battle COVID-19 headwinds.

Vancouver-based Absolute develops, markets and supports cloud-based endpoint security and data risk management, areas that are pretty essential to all businesses. Also, ABT focuses on mobile and remote workers and their tech, making its services all the more important during the current work-from-home environment, according to Kwan.

“While endpoints (e.g., laptops) are a significant cost for organizations of all sizes, the data that resides on these devices (especially customer/employee data, trade secrets, and other sensitive information) is even more valuable, thus making these devices high priority targets for hackers and exposing organizations to hefty fines in the $10-$100 million+ range,” Kwan wrote in his report.

“Spending on cybersecurity tools and applications to secure endpoints is not discretionary, especially during COVID-19 with the related surge in employees working remotely, which should help ABT weather the COVID-19 storm better than most,” he said.

Kwan also pointed to Absolute’s large and stable base of contracted revenue where 70 to 80 per cent of revenue is prepaid and booked heading into the calendar 2020, much of which is under multi-year contracts, giving ABT excellent visibility and stability, according to Kwan, who added, “The Company also has robust margins and FCF, a pristine balance sheet, and a safe and attractive 3 per cent+ dividend yield.”

ABT was on a tremendous upswing before the market pullback in late February and March. The stock had climbed from the sub-C$8.00 territory in early November to as high as C$10.50 by mid-February. Then the roof caved in, but Absolute spent little time at the bottom, having by now regained the lost ground and is currently trading even higher at C$10.90 on Wednesday.

For the upcoming third quarter fiscal 2020 due on May 11 after market close, Kwan is calling for revenue of $26.1 million and adjusted EBITDA of $5.1 million, which is slightly above the consensus of $25.8 million and $4.6 million, respectively.

The analyst thinks adjusted EBITDA margins will fall to the 18 to 20 per cent range for the second
half of fiscal 2020, although he said margins could surprise to the upside over coming quarters. He also said the drop in value of the Canadian dollar should be a boost of about 25 per cent to the company’s earnings per share. (All figures in US dollars except where noted otherwise.)

Absolute’s fiscal 2020 second quarter came in early February with revenue up six per cent year-over-year to $25.8 million and adjusted EBITDA of $6.2 million. Net income was $0.06 per share versus $0.04 per share a year earlier.

With the update, Kwan has reiterated his “Buy” rating and $11.50 target, which at press time represented a projected 12-month return of 10.6 per cent.