Calian Group Ltd T.CGY

Alternate Symbol(s): CLNFF

Industrials

Calian Group Ltd. is a diverse solutions company. The Company is engaged in providing healthcare, communications, learning and cybersecurity products and services. It provides business services and solutions to both industry and government customers in the areas of health, learning, defense, security, aerospace, engineering, and information technology (IT). Its Advanced Technologies segment is a supplier of technical solutions, services and products to the aerospace and defense, satellite, wired and terrestrial wireless, agricultural technology, and nuclear industries. The Health segment delivers healthcare and digital health solutions. The ITCS segment includes on-demand resourcing, IT and cybersecurity consulting, managed services, and software as a service. Its Learning segment provides training as a service, emergency management solutions, and custom training solutions. It also offers a full suite of services from design, installation and teleport services to satellite operations.

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Calian Group Ltd

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Post by retiredcfon May 16, 2024 9:21am

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Post# 36043075

RBC Report

Their upside scenario target is now $91.00. GLTA

May 15, 2024

Outperform

TSX: CGY; CAD 58.40

Price Target CAD 75.00 ↑ 72.00

Calian Group Ltd.

Solid Q2 as recent acquisitions surprise to the upside

Our view: Calian reported Q2 above RBC/consensus, with better than expected 19% Y/Y revenue growth and 53% Y/Y adj. EBITDA growth. The upside reflects stronger than expected performance at acquisitions (Decisive, HPT). Calian raised its FY24 guidance to reflect contribution from recent acquisitions (MDA, Mabway). Calian has been deploying capital in FY24 at lower multiples (higher IRR) than what's embedded in its 3-year target. Maintain Outperform, target to $75.00 from $72.00.

Key points:

• Q2 above RBC/consensus. Q2 revenue was up 19% Y/Y to $201MM, above RBC/consensus at $197MM/$196MM. On better than expected revenue and operating leverage, adj. EBITDA rose 53% Y/Y to $26MM, ahead of RBC/consensus at $21MM/$22MM. As a result, Q2 adj. EPS was up 62% Y/Y to $1.46, well above RBC/consensus at $1.10/$1.12.

Upside reflects better performance at recent acquisitions. The Decisive acquisition contributed $19MM revenue Q2, above our estimate for $10MM. The upside reflects some revenue pull forward from Q3 to Q2. We believe Decisive will effectively drop back to its previous run-rate. Additionally, revenue from HPT declined to $8MM from $10MM Q1, but still above our expectations ($4.5MM). Following Q2, our FY24 estimates move to $781MM revenue and $90MM adj. EBITDA, up from $773MM and $88MM previously to reflect Calian's increased FY24 guidance and contribution from the MDA and Mabway acquisitions.
Organic growth slows amidst tough comparables. Organic growth dropped to 3%, down from 12% Q1 and below our estimate for 8%. While Q2 organic growth is below Calian's 5-year average of 8%, Calian's organic growth is highly variable in the short-term (range of -11% to 27% last 5 years). The deceleration Q2 primarily stems from AT, where organic growth fell to -8% (vs. RBC at 10%), down from 21% last quarter. The decline in AT's organic growth reflects project deliveries and tough Y/ Y comparables. FY24 guidance now calls for 6% organic growth, down from 8% previously, but management doesn't expect long-term organic growth to vary from its historical average.
Outpacing its 3-year plan. In FY24, Calian has deployed $90MM capital on 3 acquisitions at an average of 4.9x EBITDA, which represents a strong start to its recently introduced 3-year plan to deploy $250-300MM capital at 6-8x EBITDA. Sustained outperformance in terms of acquisitions at lower purchase multiples would raise long-term returns and increase investor confidence in Calian's ability to compound capital.
Raising target from $72.00 to $75.00. Our Outperform thesis on Calian reflects: 1) continued compounding of capital through acquisitions and organic growth; 2) valuation at 7.7x NTM EV/EBITDA is below peers; and 3) high consistency and low beta (0.58) due to Calian’s four business units. Our revised $75.00 price target reflects our updated estimates and equates to 9.1x CY25e EV/EBITDA (previously 8.5x).