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Altus Group is still a Buy, says Eight Capital

Eight Capital analyst Christian Sgro lowered his target price on real estate software company Altus Group (Altus Group Stock Quote, Charts, News, Analysts, Financials TSX:AIF) in a Friday report, saying the macro backdrop is presenting an uphill battle for Altus.

Toronto-based Altus Group, which has asset and fund-level data and analytics for commercial real estate companies worldwide, announced its first quarter 2023 financials on Thursday, showing consolidated revenue up 14 per cent year-over-year to $190.8 million and adjusted EBITDA up 49.5 per cent to $26.5 million. 

“We had a positive start to the year, continuing our multi-quarter trend of topline growth and margin expansion,” said CEO Jim Hannon in a statement. “The team is executing against our strategy and we remain well positioned for sustained top and bottom line growth.”

The $190.8 million topline was ahead of the consensus expectation at $186.3 million as well as Sgro’s forecast at $186.5 million; meanwhile, EBITDA at $26.5 million was under the Street’s call at $29.6 million and Sgro’s forecast at $29.0 million. 

Drilling down, Sgro pointed to Q1 revenue from Altus Analytics at $94.6 million, which was up 14 per cent from a year earlier but was less than his estimate at $98.5 million. Property Tax at $66.7 million was above Sgro’s call at $58.7 million and Appraisals & Development Advisory was inline at $29.7 million.

On Altus’ market, Sgro said the current corporate real estate backdrop has frozen customer decision-making, with continuing interest rate and US regional bank concerns factoring into the mix. The analyst said recurring new booking for Analytics decreased by 31 per cent year-over-year in constant currency terms, with customers seemingly delaying purchasing decisions in what is typically an active March month.

“The headline risk to corporate real estate played out in Altus’ leading metrics, creating uncertainty around the near-term pace of Analytics growth,” Sgro wrote. “Panic in March froze customer decision-making as we wait for the economy to stabilize and clients to transact and invest again.”

“The tax business performed well, supporting performance and underscoring the importance of the diversified model. We are ultimately positive on execution despite the macro, confident in Altus’ value proposition as a platform to navigate uncertainty,” he said.

With the update, Sgro nudged up his full 2023 revenue outlook to $781.3 million while dropping his adjusted EBITDA forecast from $138.6 million to $135.6 million. 

The analyst maintained a “Buy” rating on Altus Group but lowered his target price from $70 to $65, based on reduced estimates and his sum-of-the-parts valuation model. At the time of publication, the $65 per share target represented a projected return of 25 per cent. 

Sgro said Altus is currently trading at 14.6x 2024 EV/adjusted EBITDA, while his target implies an 18.6x multiple. On a comps basis, Sgro said AIF’s real estate data and analytics peers trade at 22.8x and service providers trade at 5.9x.

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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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