Calian Group has a 40 per cent upside, says Echelon

Fans of Calian Group (Calian Group Stock Quote, Charts, News, Analysts, Financials TSX:CGY) can expect more sparks to fly this year, according to Amr Ezzat, analyst for Echelon Capital Markets, who sees Calian’s M&A engine still gunning over 2023. 

In a Tuesday update, Ezzat reiterated a Top Pick status for Calian, saying the Ottawa-based business and technology services company is a quality diversified operation with a resilient balance sheet, strong cash flow generation and “a solid track record of value creation through both M&A and innovation.”

Calian’s share price took off in 2020, rising from just above $30 to $65 by the year’s end. Since then, however, the stock has bounced around and is currently trading in the $60-$65 range, having finished the first quarter of 2023 down two per cent.

But Ezzat sees better days ahead. The analyst maintained a “Buy” rating on the stock and $90.00 target price, implying a one-year projected return of 39.8 per cent.

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

Ezzat estimated Calian’s liquidity at $150-$200 million, and while he said it’s typical difficult to model M&A contributions into forecasts, Calian’s track record of executing accretive transactions deserve notice, and as such, Ezzat thinks the company’s future earnings power is being “grossly underestimated.”

By the numbers, Ezzat is forecasting full fiscal 2023 (year end September 30) revenue at $637.0 million compared to $582.2 million for fiscal 2022 and headed to $718.5 million for fiscal 2024. On EBITDA, the forecast is for $72.8 million in fiscal 2023 and moving to $90.9 million for fiscal 2024.

In recent news, Calian announced in early March a definitive purchase agreement to acquire US-based satellite and fibre-based communications provider Hawaii Pacific Teleport (HPT) for up to $62.0 million, comprised of $47.0 million at closing and with the addition of up to $15.0 million in earnouts.

Calling HPT a highly accretive addition to Calian, Ezzat said the deal should add about $18 million in revenue for Calian, with a strong mix of recurring revenue from global satellite operators.

“The acquisition allows Calian to (1) increase its exposure to top-tier customers, (2) add a recurring revenue base to a volatile segment, (3) enhance its margin profile, and (4) become a key player in the global telecommunications market,” he said.