Altus Group stock is heading to $60, says National Bank

The third quarter results from Canadian real estate consulting services company Altus Group (Altus Group Stock Quote, Charts, News, Analysts, Financials TSX:AIF) were mixed according to National Bank Financial analyst Richard Tse, who published a report on Altus on Thursday. But the growth prospects for Altus are strong enough for him to keep an “Outperform” rating on the stock, with the analyst advising investors to look beyond the less-than-stellar headline numbers.

Altus Group, which has real estate software applications and data solutions for evaluating property assets and works in Canada, the US, the United Kingdom and Asia Pacific, posted its Q3 financials on November 10, featuring consolidated revenues up 17 per cent year-over-year to $177.7 million and adjusted EBITDA up 34.8 per cent to $32.9 million. Revenue from its Altus Analytics (AA), the company’s technology segment, was up 35 per cent to $87.6 million, while CRE Consulting revenues were up four per cent to $90.3 million.

“Altus’ strong third quarter financial performance demonstrates our ability to grow revenues and expand margins,” said CEO Jim Hannon in a press release. “With our unrelenting focus on client value and operational excellence, Altus remains very well positioned to drive long-term revenue growth and margin expansion.”

Tse said Altus’ Q3 topline at $177.7 million was under both his estimate at $183.8 million and the consensus at $183.3 million, while EBITD at $32.9 was essentially in-line compared to his forecast at $33.8 million and the Street at $31.9 million. 

Digging deeper, though, Tse noted the strong performance from AA, which he said is building momentum and the segment’s key performance indicators looked good. He pointed to AA’s revenue which was up 27.7 per cent organically, and cloud adoption, which now hit 55 per cent of Altus’ user base for a 300 bps sequential improvement.

“Bottom line, we believe Altus continues to make progress on expanding its addressable market and growth opportunity for Altus Analytics, executing on what we call the ‘3Ps’, being Process, Products and People,” Tse wrote.

“While the Company’s operating actions have driven continued gains in AA, we see a lot more potential looking ahead given an expanding portfolio of products using a delivery model that should drive higher attach / renewal rates on an increasingly growing recurring revenue base,” he said.

Looking ahead, Tse expects Altus to generate full 2022 revenue and adjusted EBITDA of $733.0 million and $136.5 million, respectively, and 2023 revenue and EBITDA of $772.3 million and $142.1 million, respectively. 

Along with his maintained “Outperform” rating, Tse reiterated a 12-month target of $60.00, which implied a return of 20.9 per cent at the time of publication.