Absolute Software Corp.

Absolute Software Corp. (TSX: ABST) delivers a cloud-based service that supports the management and security of computing devices, applications, and data for a variety of organizations globally. The company’s differentiated technology is rooted in its patented Persistence technology, which is embedded in the firmware of laptop, desktop, and tablet devices by most the world’s largest global computer manufacturers (“PC OEMs”). The company recently changed its TSX ticker to ABST from ABT.

Key highlights

• Positive Outlook: The group believes that increased remote work and distance learning, would increase the demand for the security and management of computing devices, applications, and data. The company do not want to be solely reliant on network-based security – instead, they want to increase their focus on securing the actual endpoint devices. As a result, the company see an opportunity for further growth across North America and in other global regions in each of the enterprise, government, and education verticals.

• Intellectual Property and Patent Portfolio: As on September 30, 2020, the group have a global portfolio of 140 issued patents and 30 patent applications in process. These patents cover a broad range of software and communication technologies and have varying expiry dates.
• Strong balance sheet: The company is having a strong balance sheet and sufficient liquidity to support their business objectives in the coming fiscal year. Liquidity was further bolstered by USD 63.5 million on October 30, 2020, with the completion of a public offering of common shares.

Financial overview of Q1 2021

Source: Company

• In Q1 2021, total revenue increased by 11% to USD 28.5 million as compared to USD 25.7 million in Q1 2020, driven by a 12% increase in commercial recurring revenue.
• Total Annual Recurring Revenue posted in Q1 2021 was USD 111.7 million, increased by 13% as against USD 99.1 million in Q1 2020. Approximately 67% of total ARR is represented by Enterprise and Government vertical customers and rest 33% by Education vertical customers.
• In Q1 2021 the Company posted Adjusted EBITDA of USD 8.1 million, or 29% of revenue, as compared to USD 7.1 million, or 28% of revenue, in Q1 2020.
• The Company recorded net income of USD 2.6 million in Q1 2021, down by 25% as compared to USD 3.5 million in Q1 2020, due to unrealized foreign exchange loss.

• The company paid a quarterly dividend of CAD 0.08 per common share during Q1 2021.

Source: Company

Risks associated with investment

The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth. As the Company is in the Information technology sector hence, the significant risk of technological change arises. Other risks are also there such as the Company’s business strategy, evolving industry standards, intense competition, Currency fluctuations etc. 

Valuation Methodology (Illustrative): Price to Cash Flow

All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The company is continuously expanding its Global Resilience Ecosystem; at present, the company has approximately 40 independent endpoint security and productivity tool applications which help customers ensuring their mission-critical security controls remain healthy and undeletable. We expect that the company’s ARR, which results from customer term subscriptions to their software service, will continue to provide revenue stability, profitability, and cash flow.

Therefore, based on the above rationale and valuation, we have given a “Speculative Buy” rating at the closing price of CAD 12.88 on November 20, 2020. We have considered Kinaxis Inc, Real Matters Inc, EXFO Inc, Open Text Corp etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

CloudMD Software & Services Inc

CloudMD Software & Services Inc (TSXV: DOC) is digitizing the delivery of healthcare by providing patients access to all points of their care from their phone, tablet or desktop computer. The company offers SAAS based health technology solutions to medical clinics across Canada. It has developed proprietary technology that delivers quality healthcare through the combination of connected primary care clinics, telemedicine, and artificial intelligence (AI). 

Key highlights

• Inorganic Expansion: On November 19, 2020, the company announced the acquisition of Re: Function Health Group Inc., a leading rehabilitation clinic network, with 8 clinics and 37 specialists and allied health professionals at the aggregate consideration of CAD 8 million. The acquisition will be immediately accretive to the company as the acquired group of clinics generated approximately CAD 5.8 million in revenues with EBITDA margins exceeding 19% over the last fiscal year ending January 2020. Further, the company made another acquisition of iMD Health Global Corp., an award-winning platform designed for healthcare professionals at every level of care to engage better, inform and educate patients about their conditions and treatment plans. The platform has access to over 7.5 million patients and is currently being used by over 10,000 healthcare professionals and other users, including 3,800 doctors, 2,000 pharmacies, 140 hospitals, and 150 specialty clinics. 

• Stock Hovering in Bullish Zone: At the last closing price, shares of DOC traded above all the long-term, short-term as well as immediate support levels of 200-day, 100-day, 50-day, 30-day, 10-day and 5-day SMAs, which implies a bullish price momentum in the stock. Also, the MACD is rising with the difference between 12-day and 26-day EMAs is positive, another bullish indicator. 

Financial overview of Q2 2020

Source: Company

• In Q2 2020 total revenue generated by the Company was CAD 2.7 million compared to CAD 1 million in Q2 2019, an increase of 163% on the back of SAAS model digital services which delivered revenue of CAD 0.45 million compared to CAD 0.34 million in Q2 2019.
• The revenue generated from medical clinics and pharmacies was CAD 2.3 million compared to CAD 0.72 million in Q2 2019, primarily attributable to the Company's acquisitions.
• The Company posted a Net loss and comprehensive loss of CAD 2.7 million in Q2 2020, resulting in a net loss per share (basic and diluted) of CAD 0.03 due to higher marketing, consulting, and legal expenses related to launching services in Ontario and increased acquisition activities and the contingent liabilities.

Risks associated with investment

The company is exposed to various market risks in the ordinary course of operations that could impact its earnings and cash flows. Some important risk factors include General Healthcare Regulation, Reliance on third-party service providers, Competition, Shortage of Healthcare Professionals, Cybersecurity, and Dependence on Key Personnel, etc. 

Valuation Methodology (Illustrative): Price to Book Value

(Note: All forecasted figures and peers have been taken from Thomson Reuters)

Stock recommendation

The Company is focused on innovative health care approaches that combine human skill-based expertise with emerging technologies. The group plans to aggressively grow its patient base through acquisition and organic growth over the next 12 months.

Therefore, based on the above rationale and valuation using the above methodology, we have given a “Speculative Buy” rating at the closing price of CAD 2.62 on November 20, 2020.

Daily technical chart. Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.