Altus Group Ltd.
(AIF-T) C$51.41
Q1/23 Results: May Not Be as Bad as it Seems
Event
Q1/23 results. See our previous note for a review of the results.
Impact: SLIGHTLY NEGATIVE
The shares are down materially today, more than we expected considering sentiment heading into the quarter was already cautious with the shares down ~8% over the last month into last night's close. Fears that the weak CRE market could have an impact on Analytics growth materialised in new bookings declining by 28% y/y in cc, though we're not sure it's as bad as it seems.
Are the bookings really that bad? While we believe there may be lengthening sales cycles due to the uncertainty in the market, investors should also be aware of some nuances. New bookings in the VMS business include new funds or portfolios, while new assets added to existing VMS portfolios are not included in the new bookings metric. VMS new bookings in Q1/22 were particularly strong as new funds opened and were added to the VMS business. Not surprisingly, no new funds were added this year, which is likely a major driver of the weak y/y bookings growth. Management commented that software new bookings remained strong, suggesting that software momentum remains strong. Of course, the challenging CRE market is an overhang, and is causing lengthened sales cycles, but things may not be as bad as they seem.
We also believe that the cloud migration will continue to proceed throughout the year. These deals can come with upsells that contribute to new bookings, which we saw in the strong Q4 print. In our view, cloud migrations will proceed despite the current market volatility. ARGUS is considered essential software in the CRE industry and Altus has made it clear that support for older on-prem versions will stop. We believe CRE firms will migrate when their contracts are up for renewal.
TD Investment Conclusion
Reducing target price to $65.00. The CRE market volatility may be an overhang in the near-term, but we believe Altus could perform well when it stabilises.