Absolute Software CEO Geoff Hayden, centre, during a meeting with employees in Vancouver, B.C., on Friday February 13, 2015.DARRYL DYCK/The Globe and Mail
Investors in Absolute Software Corp. are poised to benefit from the company's renewed push to sell its information-security software across more sectors in the rapidly expanding computer and mobile device market. However, analysts caution that growth may be slower than what's expected in the technology industry.
Shares of Vancouver-based Absolute are up about 10 per cent over the past year and have beaten the S&P/TSX composite index by a long shot. However, the stock is down about 25 per cent from its six-year high of $10.68 in April, following some lower-than-expected financial results in recent quarters.
While the company has a number of repeat customers in it core businesses, which are largely in the education and health-care markets, analysts say the challenge has been signing on new businesses in these and other sectors.
The company has beefed up its sales team, but the results have yet to boost the bottom line. For example, revenue for the fourth quarter was flat year-over-year at $23.3-million (U.S.) and rose a modest 3 per cent to $93.6 million for the year ended June 30, compared with the year before.
To keep investors optimistic, Absolute said recently it's selling off businesses that don't fit into its dominant information-security market. It's also buying back $50-million (Canadian) in shares and plans to increase its next quarterly dividend, now yielding 3.5 per cent, by a penny to eight cents.
"The actions the company has taken make sense to me and I think that ultimately, in the coming months, they should lead to accelerated growth," said BMO Nesbitt Burns analyst Thanos Moschopoulos, who has an "outperform" (similar to "buy") and a $9.50 target on the stock.
All seven analysts who cover the stock have "buy" recommendation, with a consensus price over the next year of $10.77, almost 35 per cent above its current price around $8.
"It may take a quarter or two for the new sales force to get their legs, but we think the future looks bright for the company," said Cantor Fitzgerald analyst Ralph Garcea, who has a "buy" and an $11 target on the company's stock.
PI Financial analyst Pardeep Sangha bumped up his recommendation to "buy" from "neutral" and his target to $9.50 from $9 last week, citing progress at the company. Once it becomes a pure-play information-security company, Absolute will also be "an attractive acquisition target" due to its strong balance sheet, healthy cash flows and dividend, Mr. Sangha said in a note.
Absolute's software is built into computers, laptops, tablets and smartphones sold by companies such as Samsung Electronics Co. Ltd., Dell Inc. and Hewlett-Packard Co.
Absolute makes money when users activate the software, which protects against theft of computing devices. Absolute also has a team that helps to recover a lost or stolen device, or prevent information on it from being compromised.
Chief executive Geoff Haydon, who took over the top job in July, 2014, said he has been working to "clarify" Absolute's growth strategy. Information security represents 90 per cent of the company's revenue and more than 95 per cent of its customers, and Mr. Haydon wants Absolute to focus on that growing market alone.
"The protection of information has emerged as one of the most prominent IT [information technology] priorities," Mr. Haydon said.
The plan is to keep growing Absolute's key education business, which accounts for about half of revenue, but also delve deeper into health care, government and other sectors such as financial services, aerospace and retail.
Mr. Haydon said he expected the changes at the company would create some "disruption" in the short term.
"That's the nature of making the kinds of changes we believe we've had to make in the spirit of creating a long-term growth capability," he said.
5i Research managing partner Ryan Modesto said Absolute is making some good moves and the dividend is attractive, but he sees better growth stocks in the technology sector right now.
"Everything about the business is pretty good, but the valuation isn't overly exciting," Mr. Modesto said.