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On today’s TSX Breakouts report, there are 60 stocks on the positive breakouts list (stocks with positive price momentum), and 16 stocks are on the negative breakouts list (stocks with negative price momentum).

The stock discussed today is the best performing stock the S&P/TSX composite real estate sector index with a remarkable price return of 56 per cent year-to-date. Last month, the stock appeared on the positive breakouts list with the share price closing at a record high. The share price subsequently pulled back over 10 per cent. The share price has since stabilized and is now rising ahead of the company’s release of its quarterly earnings results.

The stock discussed below is Altus Group Ltd. (AIF-T).

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A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Toronto-based Altus Group provides advisory services, software, and data solutions to the commercial real estate industry, such services include property tax consulting, property valuation, and cost consulting.

The company has three distinct reporting segments: Altus Analytics (AA), commercial real estate consulting (CRE Consulting – property tax, property valuation, and cost consulting), and geomatics. For the first half of 2019, AA represented 34 per cent of total revenue, CRE Consulting accounted for 58 per cent of revenue (39 per cent property tax, and 19 per cent from property valuation and cost consulting), and geometrics represented approximately 8 per cent of total revenue.

Altus Group has operations in North America, Europe, and Asia. In terms of geographical revenue breakdown, during the first six months of 2019, 38 per cent of its revenue was from Canada, 36 per cent was from the U.S., 20 per cent came from Europe, and the balance, 6 per cent, was from Asia.

After the market closed on Aug. 8, the company reported better-than-expected second quarter financial results that sent the share price soaring 8 per cent the following trading day on high volume with over 688,000 shares traded.

The company reported revenue of $153.65-million, up 14.5 per cent year-over-year from $134.2-million, and above the consensus estimate of $147-million driven by strength in the property tax business and Atlus Analytics. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $31-million, exceeding the Street’s forecast of $23-million. Adjusted EBITDA margin was 20.2 per cent, up from 17.7 per cent reported during the same period last year. Adjusted earnings per share came in at 52 cents, beating the consensus estimate of 37 cents. The company has a healthy balance sheet with a debt-to-EBITDA ratio of 1.9 times at quarter-end and $51.6-million of cash.

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On the earnings call, the chief financial officer Angelo Bartolini remarked on the strength in the CRE Consulting segment, “Property Tax posted record results. Revenues were $65.3-million, up 30 per cent with strong organic growth across the board. We saw double-digit growth in the U.S. as a result of higher appeal volumes and increased assessment values, which led to higher savings for our clients. We saw a double-digit growth in Canada, specifically driven by strong performance in British Columbia and Alberta, both annual cycles that tend to have a higher concentration of settlements in the first half of the year. Although Ontario continued to be impacted by the appeal process changes, revenues improved sequentially and we are starting to see a positive trend in the current cycle case settlements, which have doubled sequentially from the first quarter, and in the U.K., we experienced a solid quarter as per our expectations with annuity billings, which represented $9.9-million compared to $4.7-million last year.”

The company has two main drivers – a longer-term growth opportunity and a near-term driver.

Altus is transitioning its AA business to a cloud, subscription model. Management anticipates the AA segment will deliver between 7 per cent and 12 per cent revenue growth in 2019 with EBITDA margins of between 17 per cent and 20 per cent. By the end of 2021, management is forecasting AA’s recurring revenue will rise to over 90 per cent from its current level in the 70 per cent range. Looking out to 2023, management anticipates Altus Analytics to realize revenue of $400-million and adjusted EBITDA margins of over 30 per cent.

In the near-term, management expects to see continued strength from its property tax business. On the call, the CFO said, “Our outlook for the Property Tax remains solid. We’re on track with our expectations of appeal settlements. Our expectation remains that will have a gradual pickup in appeal settlements in both Ontario and the U.K. in the second half of the year, accelerating into 2020. Also given the backlog of cases, we expect settlements to carry well into the next cycle.”

The company is expected to release its third-quarter financial results on Nov. 7, and will be hosting an earnings call after the market closes at 5 p.m. (ET).

The consensus revenue, EBITDA, and earnings per share estimates are $136.5-million, $19.6-million, and 32 cents, respectively.

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Dividend policy

The company pays shareholders a quarterly dividend of 15 cents per share, or 60 cents per share on a yearly basis. This equates to a current annualized dividend yield of 1.6 per cent.

The company has maintained its quarterly dividend at this level since 2011.

Analysts’ recommendations

This small-cap stock with a market capitalization of $1.5-billion is covered by 10 analysts, of which nine analysts have buy recommendations and one analyst, Stephanie Price (an analyst at CIBC World Markets) has an “underperform” recommendation - a rating that she has maintained on the stock since Feb. 2019.

The firms providing research coverage on the company are as follows in alphabetical order: BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Cormark Securities, GMP, ISS-EVA, National Bank Financial, RBC Dominion Securities, Scotiabank, and TD Securities.

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Revised recommendations

Last month, CIBC’s Ms. Price increased her target price to $30 (the low on the Street) from $26.

Many analysts revised their expectations in August, after the company released its strong second-quarter financial results.

  • RBC’s Paul Treiber increased his target price to $39 from $35.
  • TD’s Daniel Chan lifted his target price to $39 from $36.
  • Scotiabank’s Paul Steep raised his target price to $39 from $32.
  • National Bank’s Richard Tse bumped his target price by $5 to $40.
  • Canaccord Genuity’s Yuri Lynk hiked his target price to $40 from $34.
  • GMP’s Deepak Kaushal raised his target price by $9 to $43 (the high on the Street).
  • BMO’s Stephen MacLeod increased his target price to $38 from $33.

Financial forecasts

The Street is forecasting revenue of $561-million in 2019, up from $510.4-million reported in 2018, with revenue expected to rise to $620-million in 2020. The consensus EBITDA estimates are $85-million in 2019, up from adjusted EBITDA of $70.9-million reported in 2018, and anticipated to reach $99-million in 2020. The consensus earnings per share estimates are $1.41 in 2019 and $1.57 the following year.

Earnings estimates have been on the rise. For instance, three months ago, the Street was forecasting revenue of $558-million in 2019 and $613-million in 2020. EBITDA forecasts were $80-million for 2019 and $97-million for 2020. The consensus earnings per share estimates were $1.31 for 2019 and unchanged at $1.57 for 2020.

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Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 16.8 times the 2020 consensus estimate, above its three-year historical average multiple of 12.9 times but below its peak multiple of approximately 18 times.

The average one-year target price is $38.11, implying the share price is nearly fully valued with just 3 per cent upside potential. Individual target prices provided by nine firms are as follows in numerical order: $30 (the low on the Street is from CIBC’s Stephanie Price), $35, $38, three at $39, two at $40 and $43 (the high on the Street is from GMP’s Deepak Kaushal).

Insider transaction history

Year-to-date, there have only been sales in the public market reported by insiders (no buys). Trades that have occurred so far in the second half of 2019 are detailed below.

Most recently, on Aug. 22, UK president Alex Probyn sold 2,937 shares at a price per share of $38.15, leaving 30,170 shares in his account. Proceeds from this sale, not including trading fees, totaled roughly $112,000.

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The prior day, Mr. Probyn exercised his options, receiving a total of 8,488 shares at an average cost per share of approximately $24.61, and sold 8,488 shares at a price per share of $38.15. Net proceeds, excluding commission charges, totaled nearly $115,000.

On Aug. 20, chief information officer, technology and development Ed Orlik divested 1,000 shares at a price per share of $38 with 1,834 shares remaining in his portfolio.

On Aug. 16, Terry Bishop, president – Canada Property Tax, exercised his options, receiving 10,704 shares at an average cost per share of roughly $25.37, and sold 10,704 shares at a price per share of $37.76. Net proceeds from the sales, not including trading fees, exceeded $132,000. His remaining account balance stood at 42,679 shares.

On Aug. 13, chief executive officer Robert Courteau exercised his options, receiving 41,250 shares at a cost per share of $23.85, and sold 41,250 shares at a price per share of $37.8679. Net proceeds from the sales, excluding commission charges, totaled over $578,000, leaving 138,971 shares in his portfolio.

Chart watch

Year-to-date, Altus Group is the best performing stock in the S&P/TSX composite real estate sector index with a price return of 56 per cent.

Last month, on Oct. 1, the share price closed at a record high of $39.97. However, weeks later, on Oct. 28, the stock entered correction territory, declining 11 per cent from its all-time high. Over the past week, the share price has stabilized and is steadily rising ahead of its third-quarter earnings release.

Looking at key technical resistance and support levels, the stock has an initial ceiling of resistance around $38. After that, there is major overhead resistance around $40, near its record closing high of $39.97. Should the share price retreat, there is initial technical support around $35. Failing that, there is technical support between $30 and $31, around its 200-day moving average (at $31.35).

This small-cap stock can be thinly traded, which can increase volatility in the share price. The three-month historical daily average trading volume is approximately 188,000 shares, and on some days less than 100,000 shares are traded.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Positive BreakoutsNov. 6 close
ARE-TAecon Group Inc $19.08
AC-TAir Canada $48.60
ASR-TAlacer Gold Corp $6.80
AD-TAlaris Royalty Corp $21.23
ATZ-TAritzia Inc. $19.31
ACO-X-TAtco Ltd $50.15
ATA-TATS Automation Tooling Systems Inc $19.46
BMO-TBank of Montreal $99.54
BNS-TBank of Nova Scotia $76.47
BDT-TBird Construction Inc $6.38
BAM-A-TBrookfield Asset Management Inc $74.16
BEP-UN-TBrookfield Renewable Energy Partners LP $56.80
CGY-TCalian Group Ltd. $38.25
CNR-TCanadian National Railway Co $123.88
CWB-TCanadian Western Bank $34.74
CPX-TCapital Power Corp $31.60
CS-TCapstone Mining Corp $0.60
CAS-TCascades Inc $13.31
CLS-TCelestica Inc $10.19
CHW-TChesswood Group Ltd $11.08
CHR-TChorus Aviation Inc $8.06
CIX-TCI Financial Corp $20.20
CM-TCIBC $114.75
CMG-TComputer Modelling Group Ltd $7.30
UFS-TDomtar Corp. $50.43
EBM-TEastwood Bio-Medical Canada Inc. $3.00
ENB-TEnbridge Inc $48.66
EQB-TEquitable Group Inc $118.98
XTC-TExco Technologies Ltd $7.93
EXF-TEXFO Inc $5.62
FSZ-TFiera Capital Corp $11.03
MIC-TGenworth MI Canada Inc $54.80
GWO-TGreat-West Lifeco Inc $32.78
GCG-A-TGuardian Capital Group Ltd $26.44
HCG-THome Capital Group Inc $29.75
HSE-THusky Energy Inc $10.22
IGM-TIGM Financial Inc $39.92
IAG-TiA Financial Corporation Inc. $67.80
IFC-TIntact Financial Corp $138.26
LB-TLaurentian Bank of Canada $46.54
MAL-TMagellan Aerospace Corp $16.55
MG-TMagna International Inc $74.50
MEQ-TMainstreet Equity Corp $65.30
MFC-TManulife Financial Corp $25.47
MAXR-TMaxar Technologies Ltd. $14.84
NA-TNational Bank of Canada $68.64
PHO-TPhoton Control Inc. $1.15
POW-TPower Corp of Canada $31.70
PWF-TPower Financial Corp $32.15
RBA-TRitchie Bros Auctioneers Inc $54.72
RY-TRoyal Bank of Canada $108.10
RUS-TRussel Metals Inc $22.51
SNC-TSNC-Lavalin Group Inc $26.50
SLF-TSun Life Financial Inc $60.66
TCN-TTricon Capital Group Inc $10.88
TMQ-TTrilogy Metals Inc. $2.88
WM-TWallbridge Mining Company Limited $0.72
WDO-TWesdome Gold Mines Ltd. $8.33
WTE-TWestshore Terminals Investment Corp $23.45
WSP-TWSP Global Inc $84.36
Negative Breakouts
CLIQ-TAlcanna Inc. $4.26
AR-TArgonaut Gold Inc $1.94
BAD-TBadger Daylighting Ltd $31.30
OH-TCannaRoyalty Corp. $3.66
WEED-TCanopy Growth Corp. $25.62
CWEB-TCharlotte's Web Holdings Inc. $14.06
CLR-TClearwater Seafoods Inc $5.02
CURA-TCuraleaf Holdings Inc. $6.11
HARV-THarvest Health & Recreation Inc. $3.05
LUC-TLucara Diamond Corp $0.90
MSI-TMorneau Shepell Inc $31.07
OR-TOsisko Gold Royalties Ltd $11.99
RECP-TRecipe Unlimited Corp. $22.64
SMF-TSEMAFO Inc $3.49
SW-TSierra Wireless Inc $11.74
TMR-TTMAC Resources Inc. $3.42

Source: Bloomberg

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