About Altus Group

About Altus Group

Am considering adding this holding to the core part of my portfolio, meaning that if I ever have to start liquidating my holdings, this along with my other core holdings will be the last to go. They have that recurring revenue business model that I am so fond of. The market cap is almost 2 billion now…

Altus Group is a Toronto-based developer of commercial real estate (CRE) valuation software and a leading CRE services provider. The company has three reporting units: Analytics (software and data), CRE Consulting (tax, valuation, and cost consulting), and Geomatics…

Altus Group Limited is a leading provider of software, data solutions and independent advisory services to the global commercial real estate industry. The businesses, Altus Analytics and Altus Expert Services, reflect decades of experience, a range of expertise, and technology-enabled capabilities. They offer solutions to empower clients to analyze, gain insight and recognize value on their real estate investments. Headquartered in Canada, they have approximately 2,500 employees around the world, with operations in North America, Europe and Asia Pacific. Their clients include some of the world’s largest real estate industry participants. Altus Group pays a quarterly dividend of $0.15 per share and our shares are traded on the TSX under the symbol AIF…

Investment highlights

Industry Leadership

Market share leader for core CRE practice areas; Altus Analytics solutions have market standard distinction

Global Market Opportunity

Long growth runway ahead for current offerings & new future vertical opportunities; well positioned to capitalize on increasing need for CRE tech adoption and expert advisory, with solid market fundamentals

Sustainable Competitive Advantage

Limited competition and wide moats; Altus Analytics has very strong barriers to entry due to industry standard products, scale and global customer adoption 

Financial Strength

Strong balance sheet and cash generation with stable and recurring revenues from global blue chip client base, with long-standing and sustainable dividend policy in place

Strong Track Record of Execution

Steady revenue growth since IPO (17% CAGR, 2005-2018) & successful business transition into technology driven by financially-invested management team and workforce (approx. 5% employee ownership)  

TD Securities Inc. Report…Jan 10 2020

Looking for strong recurring revenue growth from Altus Analytics (AA). During Altus' Investor Day, management noted that the transition to ARGUS Cloud is going well. Customers have been receptive to the transition, but more importantly, customers have been initiating the transition even before their contract renewal date. We believe that this is a positive early indicator of the transition for the rest of the customer base. Moreover, we believe that the pipeline of small and large customers continues to build across all geographies. We believe that the recent release of APIs will allow partners to integrate with ARGUS, which should introduce new opportunities for larger and more complex customers. As a reminder, only cloud subscription licenses are offered starting January 2020.

Expecting the Property Tax business to finish the year strong. The Property Tax business has either met or beat our expectations this year, driven by the ramp in Ontario appeal settlements and strong U.K. annuity billings. We believe that there will be a continued ramp in Ontario appeal settlements this quarter. We compiled the list of scheduled mandatory meetings for Altus' Ontario mandatory meetings (Exhibit 2). Based on the Ontario government's December update, we believe that the number of Altus' Ontario mandatory meetings will continue to ramp in Q4/19 and into 2020 and 2021. Moreover, we continue to expect the Property Tax business to demonstrate strong operating leverage as it continues to register strong revenue growth.

Outlook

Adjusting 2020 AA revenue mix. The company revealed at its Investor Day that ~14% of AA's 2019 revenue is expected to come from services. This suggests that nonrecurring revenue could make up a larger proportion of 2020 AA revenue than we had originally anticipated. We continue to forecast AA revenue growing ~15% in 2020, but have increased our non-recurring revenue mix to account for the services mix.

Expecting robust recurring AA revenue growth in the coming years. We expect AA growth to accelerate to 17% in 2021. As Altus continues to successfully migrate its customer base to ARGUS Cloud, we believe that the company's recurring revenue mix will grow to ~85% of its total AA revenue by 2021. We also believe that there is a significant cross-selling opportunity, given that only less than five of the top 200 customers have purchased multiple ARGUS products so far. Moreover, given that 68% of software revenue is from the Americas there is still plenty of room for geographic expansion. Lastly, we believe that the migration to ARGUS Cloud will provide Altus the opportunity to monetize the valuable CRE industry data that its solutions generate. We also expect AA’s EBITDA margin to expand y/y to 24.8% in 2021 from 19.8% due to operation leverage.

The Property Tax segment should be able to maintain its momentum into 2021. We have learned that there is typically significant spillover of appeal cases into the following tax cycles, which occurred during the previous Ontario and U.K. tax cycles. Given that Ontario and the U.K. had significant process changes, we believe that there is a significant backlog of cases that will spill over into the next cycle. We believe that this is supported by the large number of Altus' mandatory meetings scheduled for 2021 (Exhibit 2). Overall, we believe that Altus will register a record year in 2019 and maintain its positive momentum into 2020 and 2021.

Company Website

https://www.altusgroup.com/