Ventum cuts price target on Calian Group

Calian Group’s (Calian Group Stock Quote, Chart, News, Analysts, Financials TSXV:CGY) latest quarterly results may have disappointed, but Ventum Capital Markets analyst Rob Goff is staying positive on the stock’s long-term potential, especially in defence, while trimming his target price to $60 from $68 and maintaining a “Buy” rating.

In his May 15 report on the company’s Q2, Goff said Calian’s results were disappointing, mainly due to weak performance in its Information Technology and Cyber Solutions division, which led the company to pull its full-year guidance. While that’s a setback, he noted the other divisions are still on track, showing around 10% organic growth, consistent with earlier expectations. He added that long-term demand in the military sector remains strong.

During Calian’s results call on May 14, the company indicated that the uncertain U.S. economic outlook and election timing in Canada also held back Q2 revenues.

“These headwinds had been partially anticipated,” Goff said. “Calian indicated that it was conducting a review of non-strategic and underperforming assets along with its capital allocation. Management communicated that its core business was aligned with essential services and military markets.

“We hold the potential for Calian to monetize a significant portion of its ITCS assets should they be deemed non-essential or a lower return on invested capital. We estimate that 15-20% of the ITCS revenues are military-related, although its cybersecurity services outside the military could be deemed essential. Our note details the implications of the potential for monetizations within the ITCS portfolio, where we estimate Calian has invested $175M in assembling the portfolio.”

In the company’s results release, Calian CEO Kevin Ford said, “We sealed the first half of the year with a record quarter. Revenues, gross margin, and Adjusted EBITDA all hit historical highs, demonstrating the strength of our business model and the successful execution of our three-year strategic plan.

“Since the start of FY24, revenues are up 20%, profitability and margins have increased significantly and over one-third of our 3-year M&A target agenda has been completed with three acquisitions,” Ford said. “Given our solid results in the first half, our confidence for the balance of the year and the contribution from recent acquisitions, we increased our FY24 guidance. We are on track to deliver another record year and one step closer to our objective of reaching one billion dollars by the end of FY26.”

Goff said that despite recent setbacks, Calian’s core business remains well positioned, particularly in defence, where rising military spending in Canada and stronger U.S. alignment offer promising opportunities.

“Turning to the core, we remind investors of Calian’s unique opportunity set in military where increased domestic military spending in Canada should accelerate, given the return of the Liberal government and the clear U.S. focus and better cross-border alignment. Furthermore, Calian’s position as a Canadian supplier should provide better positioning within NATO, given the current geopolitics. We believe investors would welcome an increased focus on core assets with non-strategic, underperforming assets monetized.”

Goff said Calian’s long-term growth strategy still includes targeted acquisitions that add value and align with its core focus areas.

“We look for ongoing strategic, accretive acquisitions to inject value and, with time, contribute to renewed momentum. We reference the announced acquisition of Northwest Territories-based Advanced Medical Solutions (AMS) for up to $26.5M as an example of an on-strategy, accretive acquisition at 4.5x LTM EV/EBITDA and a backlog put at $250M. We look for acquisitions to focus on defence services and related high-growth within the Healthcare vertical.”

Goff said Ventum has lowered its 2025 forecast, now expecting $798.9-million in revenue, $268.6-million in gross profit, and $84.6-million in Adjusted EBITDA—down from earlier estimates of $804.3-million, $273.1-million, and $97.1-million.

He’s forecasting a rebound to $93.9-million in EBITDA on $849.3-million in revenue by 2026 as momentum builds around the company’s core strengths and strategic acquisitions.

He noted that the Q2 results were a setback but that he still sees potential for growth through new acquisitions in the year ahead.

“We anticipate strength in defence into H2/25 as domestic opportunities emerge and contracts slated for earlier quarters begin to materialize in Q3. Awaiting further clarity on the near-term revenue outlook, we are trimming our PT to $60.00/shr (from $68.00) while maintaining our ‘Buy’ rating on the stock.”

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