Calian wins “Top Pick” at Echelon

It’s all systems go for Calian Group (Calian Group Stock Quote, Chart, News, Analysts, Financials TSX:CGY) says Echleon Capital Markets analyst Rob Goff.

In a research update to clients April 3, Goff maintained his “Buy” rating and $74.00 target on CGY, implying a return of 32% at the time of publication.

In added the stock to the Echelon Top Picks portfolio for Q2, 2024, the analyst said the execution at Calian right now is top notch.

“We believe secular tailwinds aligned with Calian’s four strategic pillars support sustained mid-to-high single-digit organic growth,” he said. “Calian’s ambitious F2026 target of $1B in revenues and $125M in EBITDA shifted the narrative from 10% annual growth to 15% (including inorganic gains). We believe management’s successful history of operating execution supported by its track record of accretive and on-strategy acquisitions have paved the way for higher growth and positive revaluation considerations. Calian is relatively well followed and its clear narrative and consistent track record support well-informed expectations for baseline, organic growth. These considerations form a central component of our bullish thesis and also our characterization of Calian as a relatively low-risk name with an attractive upside.”

Goff thinks CGY will post EBITDA of $89.0-million on revenue of $768.0-million in fiscal 2024. He expects those numbers will improve to EBITDA of $99.0-million on a topline of $823.0-million in fiscal 2025.

“CGY shares reflect 7.9x/6.5x C2024/25 EV/EBITDA (8.3x/7.2x C2025/26 at our PT) with the shares at corresponding P/E valuations of 11.1x/8.5x at our C2024/25 EPS at $5.05/$6.65. The shares yield 9%/11% against C2024/25 FCF with our PT target yielding 9% against C2025. From a historical perspective, the shares have averaged 10.8x NTM EV/EBITDA (using CapIQ Consensus) over the past four years with one standard deviation range of 8.6x to 12.9x. Consequently, at 8.4x NTM EV/EBITDA (using CapIQ Consensus) CGY shares sit slightly below the lower band of the one standard deviation range. Our one-year target DCF at $88/shr reflects a conservative discount rate of 14% and terminal value at 7.25x EV/EBITDA, which equates to an FCF yield of 10% and a relatively modest perpetual growth rate of 1.4% considering the secular trends. We note that moving our terminal EV/EBITDA to 8.25x would add $9.99/shr and the implied terminal growth would move to a still modest 2.8%.,” the analyst added.

What does Calian Group do? (Via Echelon)

Calian Group Ltd. operates in systems engineering and business/technology services across Canada, the United States, and Europe. Its Systems Engineering segment specializes in satellite communications, defense/security, and high-end telecommunications, offering communication systems and engineering services for commercial and government spacecraft applications. The Business and Technology Services segment provides engineering, training, IT, healthcare delivery solutions, and workforce management services. Founded in 1982 as Calian Technologies Ltd., it’s headquartered in Ottawa, Canada.