Laurentian Bank Securities analyst Nick Agostino is expecting a strong year-end from Ottawa-based tech company Calian Group (Calian Group Stock Quote, Chart, News, Analysts, Financials TSX:CGY). In a Monday client report, Agostino gave a fiscal fourth quarter preview where he maintained a “Buy” rating and target price of $74.25/share for a projected return of 28.7 per cent.
Founded in 1982, Calian Group provides products, business services and solutions to a range of government, defense, and commercial customers, segmented into Advanced Technologies, Health, Learning and IT operating units.
Agostino’s updated analysis comes ahead of Calian Group releasing its fiscal fourth quarter 2021 financial results on Wednesday after market close.
Agostino projects $131 million in revenue for the Q4, which would represent a 6.4 per cent year-over-year change, but also a sequential drop of 3.8 per cent. If the projection holds, it would also come in ahead of the consensus projection of $129.3 million.
Agostino also projects a year-over-year jump in Calian’s adjusted EBITDA, forecasting $12.4 million in the quarter for a 34.5 per cent increase compared to the same quarter in 2021. However, as was the case with revenue, the figure would again represent a sequential drop of 3.8 per cent despite significantly outperforming the report from the same quarter of 2020 ($9.2 million, 34.5 per cent year-over-year increase), as well as being largely in-line with the $12.3 million consensus estimate.
Calian has also been busy on the acquisition front, having initially announced its intent to acquire SimFront, an end-to-end immersive virtual-reality training solutions provider to clients in the military space including the Canadian Department of National Defense, the U.K. Ministry of Defence and the Asia Pacific region, on October 7.
“Having successfully collaborated with SimFront for 15 years, I am confident that this is a solid culture fit,” said Kevin Ford, Calian CEO in the company’s November 7 press release. “Our customers need an end-to-end offering in the training and simulation space, and with SimFront we will continue to over-deliver on customer expectations. This acquisition aligns strongly with all four pillars of our growth strategy – continuous improvement, customer retention, customer diversification and innovation.”
The deal, which came at a cost of $9 million upfront with a $6 million, two-year earn-out based on EBITDA performance. With Agostino noting SimFront’s $9 million in LTM revenue, the deal was noted to be accretive to the company at a 1x sales multiple. Agostino also noted significant cross-selling potential through this deal going forward into Calian’s Health client base as well, as the company looks to build on its strong presence with the Canadian government and military ahead of potential expansion into Europe.
Agostino projects Calian Group to complete a big step forward in his overall 2021 revenue projection, as the $521.8 million projection translates to a potential year-over-year increase of 20.7 per cent. However, on account of SimFront’s integration, Agostino modified his 2022 projection, with the forecasted $583.2 million in revenue (previously $574.2 million) translating into a potential year-over-year increase of 11.8 per cent.
More than two-thirds of the company’s 2021 revenue mix is projected to come from the Health ($201.9 million) and Advanced Technologies ($166.4 million), slightly dropping to 69.6 per cent in 2022, with the Health segment projected to growth to $218.1 million (eight per cent year-over-year increase), and the Advanced Technologies segment growing to a projected $181.8 million (9.3 per cent year-over-year increase).
Agostino also calls for significant growth in the company’s adjusted EBITDA and margin, projecting a 41 per cent year-over-year growth in adjusted EBITDA to $51.9 million for a 9.9 per cent margin, getting into double figures in 2022 at a projected 10.3 per cent margin, with the $60.2 million projection (previously $59.3 million) translating to a potential year-over-year increase of 15.9 per cent.
With the increased EBITDA ramp in place, Agostino projects a drop in the EV/EBITDA multiple from the reported 14.3x in 2020 to a projected 11.6x in 2021, then dropping again to a projected 10.6x in 2022.
Meanwhile, with projected increases in adjusted EPS (projected $3.48/share in 2021 and a projected $3.84/share in 2022), Agostino is forecasting the P/E multiple to drop from the reported 22.3x in 2020 to a projected 16.6x in 2021, then dropping again to a projected 15x in 2022.
Going forward, Agostino noted a number of potential focus points, including pandemic-related impacts on revenues and margins in the Advanced Technologies and ITCS segments, with an eye on growth sustainability in the company’s Health segment.
“We look for FQ4 net cash of $58.4 million (no debt), with CFO of $10.3M (incl. w/c). Post-SimFront, our net cash estimate stands at $47.1 million, with an additional $80 million available on the revolver to finance further M&A,” Agostino wrote.
Calian Group’s stock price has slowly crept downward, having lost 12.3 per cent for the year to date, and 10.5 per cent of its value since October 19. The stock peaked on March 2 at $66.90/share before bottoming out at $53.91/share on May 26.
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