Calian Group is a Top Pick, says Echelon

It’s full speed ahead for Calian Group (Calian Group Stock Quote, Charts, News, Analysts, Financials TSX:CGY), according to Echelon Capital Markets analyst Amr Ezzat, who on Tuesday reiterated Calian as one of his Top Picks. Ezzat said Calian’s solid balance sheet and strong cash flow generation mark it as a good bet to deliver higher earnings in 2023.

Calian is a provider of business and technology services in the areas of Health, IT, Learning and Advanced Technologies, with clients in industry and government in Canada as well as worldwide. Founded in 1982, Calian is headquartered in Ottawa and has over 3,000 employees globally.

The company has consistently driven up revenue in recent years, including its latest — fiscal 2022 for the year ended September 30, reported in November — which saw revenue up 12 per cent to $582 million and adjusted EBITDA up 27 per cent to $66 million. 

By segment, Calian’s ITCS business saw the strongest growth in fiscal 2022, going from $82.3 million to $173.0 million in revenue. The company’s Health business dropped to $167.1 million, Advanced Technologies came in at $150.4 million and Calian’s Learning segment had revenue of $91.7 million.

The market responded to the good news, driving Calian’s share price to a fourth quarter 2022 return of 19.9 per cent, outperforming the S&P/TSX Small Cap Index which rose by 8.4 per cent.

But Ezzat sees further upside from here, reiterating a “Buy” rating on CGY and 12-month target of $85.00 per share, which at press time represented a projected return of 29.0 per cent.

“Trading at a last 12 months 8.6 per cent free cash flow yield, we believe current valuation levels provide investors with an exceptional opportunity to consolidate a position in a quality operator with a solid track record of value creation,” Ezzat wrote.

“Recall, CGY recently delivered impressive FQ422 results, a recurring theme, which cements the Company’s reputation as a resilient, secular compounder. With an unlevered capital structure ($35.1 million in cash and no debt) in a buyer’s market, we expect 2023 to be a year of more aggressive capital allocation into M&A,” he said.

Ezzat estimated Calian has between $150 and $200 million in liquidity to potentially deploy in acquisitions, which would add $20-35 million in EBITDA against the company’s last 12 months EBITDA of $65.9 million.

Ezzat has estimated Calian’s revenue to go from $582.2 million in 2022 to $658.2 million in 2023, while EBITDA is expected to go from $65.9 million to $70.3 million.