Altus Group has an “Outperform” rating from National Bank

A change at the top raises some questions but National Bank of Canada analyst Richard Tse continues to find Altus Group Limited (Altus Group Stock Quote, Charts, News, Analysts, Financials TSX:AIF) appealing, maintaining an “Outperform” rating and target price of $80/share for a projected return of 40.3 per cent in an update to clients on Friday.

Founded in 2005 and headquartered in Toronto, Altus Group is an independent provider of real estate consulting services, real estate software applications and data solutions operating in Canada, the U.S., the UK and Asia Pacific. The company’s products and services are used by banks, pension funds, insurance companies, accounting firms, real estate-oriented organizations, industrial companies and investors to evaluate real property assets.

Tse’s updated analysis comes after a busy day for Altus, releasing preliminary fourth quarter financial results, entering into a new NCIB, and most prominently, making a change to its leadership team, with Jim Hannon, who previously served as President of Altus Analytics, taking over as the company’s CEO with the departure of Mike Gordon, effective April 1. 

“Optically, the executive changes raise obvious questions, particularly  ‘why now?’ when Altus is arguably in the early stages of executing on Mike Gordon’s growth plan,” Tse said. “Having been in the role for just over a year (five quarters), we think it’s reasonable to say the change adds incremental risk to the name, even if Mr. Gordon’s successor has been an integral part of executing the former plan.”

Gordon initially took over as CEO on September 30, 2020, but is leaving to become the CEO of Boston-based life science software company ArsGlobal, though he will retain his seat on the Altus board.

A 30-year veteran of global operations, Hannon joined Altus Analytics as President in December 2020, and has been involved in enhancing go-to-market plans and optimizing Altus Analytics’ operating model, leading to constant currency growth in Bookings (85 per cent) and revenue (30 per cent) in 2021.

“I am excited and honoured to take on the CEO role and I am confident that this will be a seamless transition,” Hannon said in a February 3 press release. “Altus is exceptionally positioned for growth.  We will continue executing our declared strategy and remain focused on operational excellence with the best talent in our industry.”

With Hannon moving up to the CEO role, Jorge Blanco will become the new President of Altus Analytics on April 1, as well as the Group’s inaugural Chief Commercial Officer. Previously the Chief Product Officer, Blanco will retain leadership of product strategy and roadmap, and expand his oversight to Altus Analytics operations, and commercial strategy.

“Based on our 20-year history together, I’m confident Jorge will drive strong operational results and transformative innovation,” Hannon added. “I look forward to building on the success that Mike and our senior executive team have achieved in such a remarkably short time.”

In addition to the executive change, Altus also announced a normal course issuer bid in which the company can repurchase approximately 1.3 million common shares outstanding over the next 12 months, accounting for approximately three per cent of its total shares outstanding. 

On a preliminary basis, Altus Group reported $162.9 million in fourth quarter revenue, slightly ahead of the National Bank estimate of $161.2 million and the consensus estimate of $161.8 million. The Altus Analytics side came in at $72.4 million compared to the National Bank estimate of $72.1 million and the consensus projection of $72.6 million; meanwhile, the CRE Consulting side brought in $90.6 million in revenue, in line with the National Bank forecast of $89.2 million and the consensus estimate of $89.9 million. (All report figures are in US dollars except where noted otherwise.)

Altus Group scored a preliminary beat on adjusted EBITDA at $25.9 million compared to Tse’s $23.8 million and the consensus $23.9 million. The CRE Consulting segment delivered adjusted EBITDA of $24.2 million, beating National Bank’s $23.3 million and the consensus $23 million. Meanwhile, Altus Analytics generated $10.7 million in adjusted EBITDA compared National Bank’s $10.7 million estimate and the Street’s $9.3 million.

Tse believes the preliminary results will allow Altus a bit of breathing room for investors to determine how to proceed.

“While the process to find a replacement for Mr. Gordon appears to have been executed with diligence and Mr. Hannon appears to be well credentialed for the role, as with any executive change, we’ll need to reflect on how it may impact our implied valuation discount rate for the stock,” Tse said. “Fortunately, the strong preliminary results provide some time to make that assessment.”

Altus has seen its stock value drop by 26.9 per cent since the start of January, and by nearly $10/share since Monday alone. However, despite the recent drop, Altus has produced a 12-month return of four per cent, reaching a 52-week high of $71.96/share on December 10.