Rated Outperform with a $75.00 target. GLTA
EQUITY RESEARCH
Investor Day Takeaways Our Conclusion
Calian management hosted its annual investor day on February 15, and the
event centred on management outlining its three-year ‘One Calian 2026’
strategic plan. The major takeaway from the strategic plan was
management’s desire to grow to $1B in revenue by 2026, leaning more
heavily on M&A to achieve the 15% three-year CAGR necessary to hit those
targets. With Calian’s strong recent track record on M&A, the decision to take
on a reasonable amount of debt—after historically avoiding leverage—should
be well received by investors. Increased acquisition spending will help Calian
expedite moves into new geographies and new commercial customer bases,
areas of diversification that we believe make the business more resilient and
expose it to more growth tailwinds. On the heels of a strong Q1, the investor
day presentation further emphasizes the wide range of growth and margin
expansion opportunities Calian has ahead of it.
Key Points
Growth Targets For 2026: Top-line growth and EBITDA margin expansion
over the next three years is the centrepiece of Calian’s One 2026 growth
strategy. Hitting $1B in revenue would require Calian to grow at a 15%
CAGR over the next three years, and management plans to reach that target
with a mix of roughly one-third organic growth and two-thirds acquired
growth. Implied organic growth of 5.5% is a reasonable target, and in line
with or slightly below recent historical levels. The company expects margin-
accretive acquisitions and margin expansion within existing business to drive
operating leverage and EBITDA to grow faster than revenue, at a 24%
CAGR.
M&A Program Details: With M&A expected to contribute the majority of
growth through 2026, CFO Patrick Houston provided an overview of Calian’s
M&A strategy, including the financial and strategic criteria underpinning M&A
aspirations. Calian plans to spend between $250MM and $350MM over the
next three years, with plans to spend $100M annually. EBITDA multiples are
expected to land in CGY’s historical 6x – 8x range, and with target margins
of 17% on acquired businesses (vs. CGY’s 2023 margins of 10%), that
implies total acquired growth of $228M.
Segmented Overviews: Calian outlined growth plans for its four individual
segments. In all four, Calian is looking to expand its international presence,
including in the U.S. in Health, AT, and ITCS as well as in Europe in
Learning. Expanding through M&A is a focus, as acquiring assets in target
regions can be an efficient way to establish Calian’s brand outside of
Canada. Growth opportunities in AT and ITCS include expanding service
offerings, which generate higher margins and contribute recurring revenue.
Health and Learning are both looking to diversify away from government and
expand into commercial. The Health segment also aims to enhance its digital
health offerings to differentiate its core Health Services business.