Asset-based Pricing For ARGUS Intelligence Will Expand Client Base

Key Takeaways

• The restructuring program post-property tax sale aims to enhance profitability and EBITDA margins, while strategic liquidity use targets increased EPS and EBITDA.
  
• Focus on high-margin recurring revenue and asset-based pricing for ARGUS Intelligence is intended to boost overall revenue and cash flow conversion.
  
• Economic and competitive pressures, along with strategic transitions, could challenge revenue and margin stability, with expected recovery hinging on improved market conditions.

Catalysts

Provides asset and funds intelligence solutions for commercial real estate (CRE) in Canada, the United States, the United Kingdom, France, Europe, the Middle East, Africa, Australia, and the Asia Pacific.

• The company is executing a new restructuring program in 2025 to right-size its business after the property tax sale, which is expected to improve profitability and impact EBITDA margins.
  
• The Analytics segment is focusing on high-margin recurring revenue with 94% of Q4 revenues being recurring, expected to sustain recurring revenue growth of 6% to 9% in 2025, positively affecting revenue and net margins.
  
• The adoption of asset-based pricing for ARGUS Intelligence is expected to drive broader user adoption at clients, increasing revenue through higher price realization and user expansion.
  
• The sale of the Property Tax business has resulted in significant liquidity, which will be used for strategic acquisitions and share repurchases, potentially boosting earnings per share (EPS) through reduced shares outstanding and EBITDA from possible accretive acquisitions.
  
• The improvement in working capital management and the reduced CapEx has led to higher free cash flow conversion, which is expected to enable the company to achieve its 65% to 70% adjusted EBITDA to free cash flow conversion target by 2026, enhancing cash flow metrics.

Altus Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Altus Group's revenue will grow by 7.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.2% today to 15.2% in 3 years time.
• Analysts expect earnings to reach CA$97.5 million (and earnings per share of CA$2.0) by about March 2028, up from CA$-793.0 thousand today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.4x on those 2028 earnings, up from -2972.5x today. This future PE is greater than the current PE for the CA Real Estate industry at 9.2x.
• Analysts expect the number of shares outstanding to grow by 0.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.6%, as per the Simply Wall St company report.

Altus Group Future Earnings Per Share Growth

Risks

• Potential geopolitical events and economic downturns could affect transaction volumes, impacting revenue growth expectations.
  
• The company is facing softer performance in its Data Solutions segment and pricing pressure from competitors, which could challenge revenue stability.
  
• The restructuring charges and costs related to the transition service agreement post-property tax sale could impact net margins in the short term.
  
• The company's guidance anticipates a gradual recovery with stronger performance in the second half, suggesting risk if market conditions do not improve, affecting earnings forecasts.
  
• The shift away from non-core data clients and winding down non-recurring revenue services could temporarily reduce revenue growth until core services ramp up.
  

Valuation

• The analysts have a consensus price target of CA$60.143 for Altus Group based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$642.7 million, earnings will come to CA$97.5 million, and it would be trading on a PE ratio of 35.4x, assuming you use a discount rate of 7.6%.
• Given the current share price of CA$51.55, the analyst price target of CA$60.14 is 14.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.