Absolute Software has climbed high. It can go higher, says PI

Even with its gains over the first half of 2020, Absolute Software (Absolute Software Stock Quote, Chart, News TSX:ABT) is still trading at a discount to its cybersecurity industry peers.

That’s the scoop from PI Financial analyst David Kwan who on Monday gave clients a corporate update on ABT where he reasserted his “Buy” rating but lifted his target due to improving fundamentals.

Absolute Software, which develops, markets and supports endpoint security and data risk management for commercial, healthcare, education and government clients, has been a rocket of a stock over the past few months, climbing 129 per cent since its mid-March lows.

ABT is up 76 per cent year-to-date.

Kwan has updated his forecasts to reflect what he sees as improving fundamentals in its Education business that should allow the stock to continue outperforming. In recent years, Education has been holding back the company’s growth compared to its Enterprise and Government verticals.

But the current push in education to support online learning has been a boon for Absolute, Kwan said.

“ABT is a beneficiary of the increased use of learning (and working) remotely, as school districts not only needed more devices for students (and their employees/staff, who too are working remotely) but they also need to ensure that they can track them, secure them, and ensure they are being used appropriately, all things ABT can help them with,” Kwan wrote. “ABT can also help school districts analyze the usage of the devices and tie them to student performance.”

Kwan said ABT’s Education vertical saw its annual contract value increase slightly on a sequential basis in its most recent quarter, the company’s fiscal third quarter 2020, the first such move in over two years (excluding an anomaly in Q2 2019).

“We believe the pace of growth could continue to improve in the coming quarters, leading to material YoY growth in mid-FY21. The elimination of this drag, combined with growth in the Enterprise and Government verticals remaining in the low to mid-teens, should translate into overall revenue and ACV growth north of 10 per cent in just a few quarters (we assume Q3 FY21/Q1 CY21),” Kwan said.

Looking ahead, Kwan’s fiscal 2020 forecasts have remained the same at $104.2 million in revenue and $25.2 million in adjusted EBITDA, while his fiscal 2021 has been moved to revenue of $113.2 million (was $111.2 million) and EBITDA of $27.4 million (was $26.6 million). (All figures in US dollars except where noted otherwise.)

“We note that ABT’s valuation multiples have significantly improved in recent months, helping narrow the (still) significant gap versus its peers to just over 35 per cent (from ~50 per cent a couple of months ago) on an EV/EBITDA (CY21e) basis,” Kwan wrote.

Kwan’s reiterated “Buy” rating comes with an increased target of C$18.25 (previously C$15.25), which at press time represented a projected 12-month return of 22.2 per cent.

Last month, Absolute announced new research highlighting what it calls “the massive amount of complexity plaguing today’s enterprise endpoint environments” which is on the whole hindering IT and Security’s ability to maintain strong security practices.

“What has become clear with the insights uncovered in this year’s report is that simply increasing security spend annually is not guaranteed to make us more secure,” said Christy Wyatt, President and CEO of Absolute, in a press release on June 25. “It is time for enterprises to increase the rigor around measuring the effectiveness of the investments they’ve made.”