Enghouse Systems Ltd.
(ENGH-T) C$58.92
Q1/F21 Preview: Expecting Acquisitions to Largely Drive Growth
Event
Q1/F21 Results: Thursday, March 11, 2021, after markets close.
Conference Call: Friday, March 12, 2021, at 8:45 a.m. ET. 647-689-4521 or 1-888-235-7649, passcode: 5057458.
Impact: NEUTRAL
We forecast total revenue of $128.6mm, up 16% y/y. We estimate Interactive Management Group (IMG) revenue of $73.4mm, up 17% y/y, and Asset Management Group (AMG) revenue of $55.2mm, up 15% y/y. We also expect combined revenue contribution of $14.7mm from recent acquisitions. We forecast EBITDA of $44.8mm, or 34.8% EBITDA margin, and EPS of $0.46, up 34% y/y.
Looking for updates on the M&A environment. Enghouse recently acquired Altitude Software, a contact center solutions provider in Lisbon, Portugal. Financial terms of the transaction were not disclosed. Management noted that Altitude generates ~$30mm of annual revenue. If we assume that Altitude was acquired for ~1x EV/Revenue, or ~$30mm, and consider the previously announced special dividends to be paid in Q2/F21, we estimate Enghouse will still have ~$163mm of net cash. As vaccines are rolled out globally and lockdowns continue to ease, we believe that the extended due diligence processes could start to normalize. With plenty of capital and a proven ability to source and integrate acquisitions, we believe Enghouse is well-positioned to accelerate its acquisition strategy.
We are also optimistic on the improving environment. We continue to expect the IMG segment to benefit from the hybrid remote work environment as video conferencing solutions remain in high demand. This is again supported by Zoom's 369% y/y revenue growth this quarter. While we do not expect Enghouse to post growth anywhere near this level, it does show that the environment continues to be supportive of video conferencing solutions. We will also be looking for updates on the delayed deals from last quarter. We believe that the AMG segment could also demonstrate improvements as lockdowns continue to ease.
TD Investment Conclusion
We remain favourable on the name given its healthy balance sheet. We believe Enghouse is well-positioned to accelerate its acquisition strategy as markets normalize. Peer multiples have recently contracted; we will revisit our estimate and valuation multiples after the company reports results.