Calian Group is my 2023 pick, says Laurentian Bank analyst

It was a rough 2022 for stocks and that included top recommendations from Laurentian Bank Securities, which saw its 2022 Preferred Picks return a combined equal-weighted negative 41.0 per cent.

And with a number of elements currently spooking investors, including inflation, interest rates and a looming recession, it’s time to tread carefully, says Laurentian, which recently released its picks for 2023. For this year, analysts have selected companies, “with sound business opportunities, healthy balance sheets and cash flow generation, and positive organic growth/Net Asset Value,” according to Laurentian.

In the Diversified Technology bracket, Laurentian analyst Nick Agostino nominated Calian Group (Calian Group Stock Quote, Charts, News, Analysts, Financials TSX:CGY), saying the company offers a number of positive traits for investors seeking a more conservative approach to the new year.

To start, Agostino pointed to the company’s diverse topline exposure to a number of sectors, as Calian provides business services and solutions to the government, defence and commercial sectors. With over 4,400 employees, Calian’s four operating units are in Advanced Technologies, Health, Learning and IT. Moreoever, Agostino said in healthcare and cybersecurity Calian has exposure to end markets with favourable secular trends.

At the same time, Agostino spoke of Calian’s healthy balance of organic and acquired growth, its long-standing client base, especially in the government vertical, steady corporate EBITDA margins, long history of profitability and positive free cash flow, strong backlog (at its latest report at $1.3 billion), healthy balance sheet and a nominal dividend yield, as well. The analyst said while a market slowdown and recession could impact Calian’s commercial orders (which represent 53 per cent of its sales) the company’s 47 per cent sales exposure to the public sector will offer a buffer during rough times.

“With concerns of an (earnings) recession in 2023, we believe Calian Group Ltd.’s (CGY) diverse sales exposure in growing markets (Advanced Technologies, Health, Learnings and IT/Cybersecurity), along with a meaningful number of government clients, offers a lower risk investment proposition in a potential economic downturn,” Agostino wrote in the December report.

On the numbers, Agostino projects Calian will generate 2023 fully diluted and adjusted EPS of $4.50 per share compared to $3.87 per share in 2022 and adjusted EBITDA of $72.3 million compared to $65.9 million in 2022.

Agostino reiterated a “Buy” rating on CGY and $80.00 target price, which at the time of publication represented a projected one-year return of 22.2 per cent.