Upcoming International Contracts Will Expand Technology Solutions Segment In 2025

Key Takeaways

• Expansion via organic growth and strategic M&A is set to double revenue and adjusted EBITDA by 2028, leveraging strong foundational growth.
  
• Diversified division growth, stable real estate market, and increased transaction volumes are expected to boost revenue and net margins.
  
• The company's reliance on M&A for growth alongside market challenges and operational cost pressures may affect future revenue and earnings.

Catalysts

Provides registry and information management services for public data and records in Canada.

• The company has set a goal to double its revenue and adjusted EBITDA by 2028, leveraging strong foundational growth in 2024. This initiative will focus on expanding revenue through organic growth and strategic M&A, which should impact both revenue and earnings positively.
  
• Strong performance in the Saskatchewan Registries division was noted, with increased volumes and high-value property registration revenues. This is expected to continue with steady performance backed by a stable real estate market, potentially increasing revenue.
  
• Growth in the Regulatory Solutions division is anticipated due to ongoing enhancements in anti-money laundering policies, which elevate Know Your Customer (KYC) and due diligence activities. This growth in transaction volume is likely to boost revenue.
  
• The Technology Solutions segment is forecasted for double-digit growth in 2025 due to a robust project pipeline, including contracts with regions such as Cyprus and Lichtenstein. This will likely enhance revenue and potentially improve net margins over time.
  
• Continued investment in people and technology aims to drive efficiency and expand service capabilities, which should bolster organic growth and operational leverage, positively impacting net margins and earnings.

Information Services Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Information Services's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.5% today to 13.8% in 3 years time.
• Analysts expect earnings to reach CA$40.1 million (and earnings per share of CA$2.16) by about March 2028, up from CA$20.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.2x on those 2028 earnings, down from 22.6x 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 1.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.29%, as per the Simply Wall St company report.

Information Services Future Earnings Per Share Growth

Risks

• The sudden and unexpected ban by the government of Ontario on Notice of Security Interests (NOSIs) could negatively impact the Corporate Solutions division, affecting future revenues.
  
• Increased expenditures due to wages, salaries, and information technology, especially within Technology Solutions, may pressure net margins despite revenue growth.
  
• The company's strategies rely heavily on M&A for growth to meet its 2028 targets, but high valuations in the market may impede acquisitions, potentially affecting projected revenue and earnings.
  
• The flat revenue trend in the Ontario Property Tax Assessment division, despite inflation adjustments, indicates limited growth potential in this segment, which could weigh on overall revenue growth.
  
• Adjustments in interest and amortization related to the Saskatchewan Registries extension and share-based compensation expenses have already impacted net income, which could persist if not adequately managed, affecting future earnings.

Valuation

• The analysts have a consensus price target of CA$33.6 for Information Services based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$36.5, and the most bearish reporting a price target of just CA$28.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$291.5 million, earnings will come to CA$40.1 million, and it would be trading on a PE ratio of 20.2x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of CA$25.24, the analyst price target of CA$33.6 is 24.9% 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.