Altus Group is a Buy, says Eight Capital

Data driven intelligence is the next leg of growth for Altus Group (Altus Group Stock Quote, Charts, News, Analysts, Financials TSX:AIF), according to Christian Sgro, analyst for Eight Capital, who on Tuesday launched coverage on the stock. Sgro started Altus off with a “Buy” rating, saying there’s strong potential for upselling to Altus’ clients in the commercial real estate (CRE) sector.

Founded in 2005 and currently with a presence in over 100 countries and an employee count of about 2,700, Altus provides asset and fund-level intelligence for CRE clients, with about 40 to 50 per cent of revenue coming from its US business.

By segment, Altus has Analytics, where it provides valuation management services through a recurring revenue, high-margin software business, and Consulting, which includes property tax and advisory services.

Sgro said there’s a lot to like about Altus Analytics, which is expected to bolt past Consulting in terms of revenue in 2023. Through conversations with customers, Sgro said he found that Analytics has strong brand penetration with the world’s largest real estate investment firms and its software and services are seen as the gold standard in the CRE industry.

“Across the entire business, Analytics is where we see the most operating leverage. We expect the company to drive stable two to three per cent annualized margin increases in the segment (currently in the low 20 per cent adj. EBITDA margin [range]),” Sgro wrote.

Sgro noted that over the past two years Altus has acquired over $400 million in Analytics assets and is ready to deploy them to expand their bottom line.

“We see the company moving through the integration phase and now driving profits from these technology and data add-ons,” he said.

As to the current climate for the CRE market, Sgro said it comes with its challenges, although trends appear to be stabilizing and the field has a better long-term picture. Further, the analyst said Altus’ high customer retention will likely persist through the current volatility, which itself should draw industry players into further digitization and data-driven analysis.

“At a high level and with a long-term view, we believe CRE will continue to be a growing investment class globally,” Sgro wrote. “There is ample research to suggest that the risk-adjusted returns or Sharpe ratios of investment portfolios improve with CRE exposure.”

On Altus’ financials, Sgro sees revenue going from $736 million in 2022 to $778 million in 2023 and to $877 million in 2024. Adjusted EBITDA is expected to move from $135 million in 2022 to $141 million in 2023 and to $184 million in 2024.

Sgro started AIF off with a 12-month target price of $70.00 per share, which at the time of publication represented a projected return of 21 per cent.