Altus Group is back on track, National Bank Financial says

After what he described as “unexpectedly strong” second quarter results, National Bank Financial analyst Richard Tse remains bullish on Altus Group (Altus Group Stock Quote, Chart, News, Analysts, Financials TSX:AIF)

On August 10, AIF reported its Q2, 2023 results. The company posted a profit of $11.9-million on revenue of $205.2-million, a topline that was down 0.6 per cent compared to the same period last year.

“Our second quarter results reflect the resiliency of our revenue model and continued focus to operate with increasing efficiency,” CEO Jim Hannon said. “Our U.S. and Canadian property tax operations had very strong quarters with double-digit growth over prior year. Our U.K. property tax team proficiently managed the reset of the annuity. Combined, the property tax teams significantly outperformed against our expectations. We are also pleased with the continuation of strong results at Analytics with 21-per-cent revenue growth and a 700-basis-point improvement in our adjusted EBITDA margins. The steady execution of our strategy, alongside the improvement in our Analytics new bookings, reinforce our outlook for the year to deliver sustained top- and bottom-line growth.”

Tse says the quarter was a pleasant surprise, and a return to form.

“With respect to the value driving Altus Analytics (AA) segment, revenue of $99.7 mln came in ahead of our $94.9 mln estimate, up 21.4% Y/Y (+15.5% CC) with Adj. EBITDA of $23.8 mln (23.8% margin) vs. our $22.3 mln estimate (23.5% margin). That solid performance was supported by notable KPIs such as organic recurring revenue growth (+25.2% Y/Y; +19.0% CC), new bookings of $24.6 mln (+4.9% Y/Y; +0.4% CC, organic), recurring new bookings of $18.4 mln (+7.9% Y/Y; +3.4% CC), and 70% of its AE user base now on Cloud (+300 bps Q/Q). Most impressive; new recurring bookings were up 30.5% sequentially from what appears to be a turn on the prior quarter’s substantial shortfall care of the early year banking challenges that negatively impacted deal signings. No doubt, the results corroborate Management’s assertions in the prior quarter. Given that turn, we believe the Company is back on track to achieving its $400 mln AA revenue target in FY’23.”

In a research update to clients August 10, Tse maintained his “Outperform” rating and one-year price target of $65.00 on Altus Group, implying a return of 49.8 per cent at the time of publication.

Tse thinks Altus will post Adjusted EBITDA of $147.5-million on revenue of $803.6-million in fiscal 2023. He expects those numbers will improve to EBITDA of $200.2-million on a topline of $904.8-million the following year.

“Bottom line,” Tse concluded, “Altus continues to make progress on expanding its addressable market and growth opportunity through a mix of strategic M&A and organic initiatives, and with the notable valuation driving segment of Altus Analytics back on track, that supports our view for a valuation re-rating (upwards).”