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Calian keeps Top Pick status at Echelon

CGY Stock

After reporting its quarterly financials, Calian Group (Calian Group Stock Quote, Charts, News, Analysts, Financials TSX:CGY) kept its Top Pick status with Echelon Capital Markets, with analyst Amr Ezzat reviewing the numbers in a Wednesday update to clients. Ezzat said Calian is all cashed up in a buyer’s market and has the solid operational and M&A track record to support strong growth up ahead.

Ottawa-based Calian, which has products and technology services for the Health, IT, Learning and Advanced Technologies sectors, announced on Tuesday its fiscal first quarter 2023 results for the period ended December 31, 2022. Calian’s topline rose by 14 per cent year-over-year to $148 million, while adjusted EBITDA was up two per cent to $14 million and operating free cash flow increased by 24 per cent to $12 million.

Management reiterated its full 2023 guidance, which calls for revenue of $630-$680 million and adjusted EBITDA of $70-$75 million.

“The strong performance of our ITCS and Learning segments was impressive. The combination of organic growth and performance from recent acquisitions in these two segments drove our results in the quarter,” said Kevin Ford, CEO, in a press release. “With $126 million in new signings and improvements in the supply environment we are confident in our ability to post our 6th consecutive record year.”

Ezzat said Q1 sales of $147.5 million were a touch ahead of his and the consensus’ call at $145.0 million, while EBITDA at $14.3 million was a little under the analyst’s forecast at $15.0 million as well as the Street at $15.4 million.

Calian got a strong performance from its IT & Cyber Solutions segment, Ezzat observed, thanks to the acquisition of Computex, which helped lift gross margins for the segment to 37.2 per cent compared to 26.5 per cent a year earlier.

Overall, Ezzat called Calian a quality diversified operation with a resilient balance sheet (the company closed the quarter with $50.7 million in net cash versus $35.1 million last quarter).

“Calian has a long history of execution, having nearly doubled revenues and EBITDA in the past three years, with CGY’s share price closely following suit,” Ezzat wrote. “Notably, Calian’s fortress-like balance sheet, high-visibility revenues and record-high share price put it in pole position to take advantage of shrinking market target multiples through M&A, which can materially improve Calian’s already solid fundamentals.”

With the update, Ezzat retained a “Buy” rating on CGY and $85.00 target price, which at press time represented a projected one-year return of 38.9 per cent.

“Admittedly, we recognize the difficulty in modelling M&A contribution in forecasts (predicting size and timing is throwing darts in the dark), but we still believe it sensible to reflect M&A in our valuation. As such, we believe Calian’s future earnings power is grossly underestimated,” he wrote.

“We are comfortable enough with the Company’s track record of executing accretive transactions to give CGY some future inorganic growth benefit. Our valuation exercise yields a fair value of $85.00/shr,” Ezzat said.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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