On Tuesday, Scotiabank updated its outlook on Altus Group (AIF:CN) (OTC: ASGTF), raising the price target to C$53 from the previous C$49 while maintaining a Sector Perform rating. The adjustment follows the recent news that Altus Group will no longer proceed with its planned acquisition of REVS, a decision that management found disappointing due to the potential benefits the acquisition could have brought to its Valuation Management Solutions (VMS) business.
The analyst at Scotiabank noted that while the termination of the REVS deal is seen as a setback by Altus Group's management, the firm had adopted a neutral stance on the acquisition, pending further details on the expected advantages. The acquisition was anticipated to significantly increase Altus Group's leverage to approximately 3.5 times compared to the current 2.0 times, which was considered a negative factor.
Scotiabank had not incorporated REVS into its forecast but had valued Altus Group's stock based on the post-transaction entity. With the deal no longer proceeding, the valuation has been shifted back to focus on Altus Group's core operations. As a result, the price target has been increased, reflecting a new target multiple for the Analytics segment, which has been raised by about 0.5 times to 5.0 times the calendar year 2025 Sales.
The revised $53 price target is underpinned by an enterprise value to EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple of approximately 12.0 times the estimated EBITDA for the calendar year 2025. This is an increase from the prior estimate of around 11.5 times the projected post-transaction EBITDA for the same period. According to the analyst, with the abandonment of the REVS acquisition, Altus Group is now more likely to maintain healthier leverage levels in the near term.
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