Altus Group is fully valued, National Bank Financial says

New quarterly results from Altus Group (Altus Group Stock Quote, Chart, News TSX:AIF) are not enough to move the needle for analyst Richard Tse of National Bank Financial, who reviewed the numbers in an update to clients on Thursday.

Real estate consulting services company Altus Group has its products and services used by financial and real estate sector businesses to evaluate real property assets. The Toronto-headquartered company released its first quarter 2020 financials on Thursday, featuring consolidated revenue of $131.3 million, an 11.9 per cent year-over-year increase and adjusted EBITDA of $13.2 million, a 2.3 per cent year-over-year decline.

Altus’ Analytics segment generated $51.7 million in revenue for the Q1, up 10.6 per cent, while CRE Consulting revenues grew 12.6 per cent to $79.6 million.

Updating on the COVID-19 pandemic’s impact on business, Altus management said its employees have adapted to remote work arrangements and operations are continuing uninterrupted, while the company “remains on solid footing” when it comes to opex, debt repayment, dividend payments and growth initiatives. At the end of the quarter, Altus had bank debt of $176.1 million and cash and equivalents of $71.2 million.

“While the current environment presents unprecedented challenges, our clients also see opportunity ahead. Our cloud-based software solutions, data analytics, and expert insights help our clients navigate through these times and seize the opportunities,” said Robert Courteau, CEO in a press release.  “Our business model and strategic direction stand strong despite the increased uncertainty in the world today, supported by a strong balance sheet and a strong base of Over Time and repeatable revenue streams.”

For his part, Tse was forecasting Q1 revenue of $122.6 million compared to Altus’ $131.3 million while his adjusted EBITDA estimate was $13.9 million compared to the resulting $13.2 million. Altus’ adjusted EPS of $0.20 per share was also lower than Tse’s $0.26 per share estimate.

Altus has provided a good return to investors over the decade, with last year being one of the highlights. AIF rose 60 per cent in 2019 plus another 25 per cent over the first month and a half of 2020. The stock is now down almost 14 per cent from its mid-February high.

Tse said Altus’ gains have made the stock less attractive at the moment but there could be more upside in the future.

“If you’ve been following our research, you’ll know we’ve been bullish on AIF for many years, and while we continue to believe there could be a fundamental valuation re-rating for the stock if the Company successfully executes its Cloud/Subscription shift with Altus Analytics, we’ve recently taken the view that the stock has ‘priced-in’ a sizeable amount of execution and we’d need to see that execution reflected in upward estimate revisions before we see a meaningful upward re-rating in the stock given that balanced risk-to-reward profile,” said Tse.

“The current pandemic adds incremental risk to that equation if only because it adds uncertainty. As such, it’s that balanced risk-to-reward profile that has us maintaining our Sector Perform rating on AIF. We’d wait for a better entry point in the name,” Tse said.

With the report, Tse maintained his “Sector Perform” rating for AIF and $40.00 target price, which at the time of publication represented a projected return of one per cent.