Calian Group scores target lift from Echelon

Echelon Capital Markets analyst Amr Ezzat says Calian Group (Calian Group Stock Quote, Charts, News, Analysts, Financials TSX:CGY) should benefit in a number of ways from acquiring satellite communications provider Hawaii Pacific Teleport. Ezzat reviewed the proposed deal in a client update on Friday where he maintained a “Buy” rating on Calian while raising his target price from $85 to $90 per share, implying at the time of publication a one-year return of 47.0 per cent.

Calian, which has business and technology services in the areas of Health, IT, Learning and Advanced Technologies, announced on Thursday a definitive purchase agreement to acquire the assets of US-based Hawaii Pacific Teleport (HPT). The amount paid on closing is $47.0 million plus earnouts of up to $15.0 million on EBITDA performance over the next 24 months.

Located on the island of Oahu, Hawaii, HPT is an international provider of satellite and fibre-based communications through teleport, data centre, media management centre and terrestrial networks. 

Ottawa-headquartered Calian said HPT should add about $18 million in revenue, including recurring revenue from global satellite operators and the company sees HPT adding immediately to Calian’s gross margin and EBITDA margin.

“This potential acquisition represents another key asset for our Advanced Technologies space division,” says Kevin Ford, Calian CEO, in a press release. “Our recent investment, with the acquisition of Computex, into the United States market has been successful, and the team at HPT will further enhance the Calian footprint and brand in this key market.”

From Ezzat’s perspective, HPT will increase Calian’s exposure to a set of top-tier customers, add a recurring revenue base to a volatile business segment in Advanced Technologies, enhance CGY’s margin profile and it will allow Calian to “become a key player in the global telecommunications market,” Ezzat said.

“Calian is a quality diversified operation with a resilient balance sheet, strong cash flow generation capabilities, and a solid track record of value creation through both M&A and innovation,” he wrote. 

“Each of Calian’s segments stands to benefit from secular growth trends. 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,” he said.

Overall, Ezzat said Calian continues to have a “fortress-like” balance sheet, high-visibility revenues and a record-high share price, all of which put the company in the pole position to take advantage of shrinking market target multiples through M&A.