Still more upside to Altus Group, says National Bank

Headline numbers from the fourth quarter 2022 from real estate software and analytics company Altus Group (Altus Group Stock Quote, Charts, News, Analysts, Financials TSX:AIF) have arrived a little under expectations, but sharp investors should be digging a deeper, according to Richard Tse, analyst for National Bank Financial. 

In a report to clients on Thursday, Tse said while the company’s Property Tax segment is losing ground, there’s a lot of interesting momentum building behind Altus’ Analytics business, which was up almost 33 per cent year-over-year for the Q4.

Headquartered in Toronto and with about 2,700 employees across North America, Altus Group provides asset and fund intelligence for commercial real estate for risk management and improved asset performance. The company released its fourth quarter and full year results on Thursday, with consolidated revenue up 12.8 per cent year-over-year to $183.8 million and consolidated adjusted EBITDA of $34.9 million, up 35.1 per cent. 

By segment, Altus’ Analytics revenue was up 32.7 per cent to $96.1 million, with recurring revenue of $85.8 million and adjusted EBITDA of $25.8 million, up 141.4 per cent year-over-year. Altus’ Property Tax revenues were down 7.0 per cent to $55.8 million, while Appraisals and Development Advisory revenues were up 5.0 per cent to $32.0 million.

For the full year, Altus’ revenue was up 17.6 per cent to $735.5 million and adjusted EBITDA was up 23.3 per cent to $135.3 million. 

Altus has made a number of acquisitions in recent years, and management said it’s now about to focus on growing its top and bottom lines.

“Fiscal 2022 was about business transformation, fiscal 2023 is about scaling profitable growth. We are well positioned to deliver sustained revenue growth and expanding margins,” said Altus CEO Jim Hannon in a press release.

On the Q4 results, Tse said revenue at $183.8 million was just shy of his forecast at $184.3 million and the consensus call at $185.5 million, while adjusted EBITDA at $34.9 million was also a little under his estimate at $35.9 million and the Street at $35.4 million.

Tse said Altus’ Tax business continues to be weighed down by cyclical tax cycles and capacity constraints in the UK, while the strong performance by Analytics was supported by notable key performance indicators like organic recurring revenue growth of 38.2 per cent, new bookings at an 8.6 per cent year-over-year growth rate as well as the fact that 64 per cent of Analytics’ user base is now on the cloud. 

“All in, we believe Altus continues to make progress on expanding its addressable market and growth opportunity through a healthy mix of strategic M&A and organic initiatives, executing on what we’ve called the ‘3 Ps’ being Process, Products and People,” Tse wrote.

“While the Company’s operating actions have driven continued gains in Analtyics, 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, an increasingly growing recurring revenue base and growing operating leverage,” he said.

With the update, Tse retained an “Outperform” rating on Altus Group and $75.00 target price, which at press time represented a projected one-year return of 28.2 per cent.