Analysts Downgrade Absolute Software After Disappointing Quarter

Absolute Software Corp.'s (ALSWF.PK) disappointing first quarter results have research analysts running for the hills, some cutting their target prices by more than half. The software company, based in Vancouver, B.C., with a specialization in data protection and computer theft recovery, revealed it had missed predicted sales targets of C$26.2-million by about C$8-million.

“While we anticipated some weakness, we did not expect a shortfall of this magnitude,” RBC Capital Markets analyst Robert Breza said in a note released Friday. He downgraded Absolute to “sector perform” from “outperform” while cutting his price target to C$6 from C$16.

Mr. Breza said:

While the company saw a noticeable slowdown in the last two weeks of the quarter [due to the turbulent global market], there was an extreme impact in the last two days of the quarter when spending literally stopped.

The reaction from Versant Partners' Tom Liston was much the same:

A slew of large orders (predominantly government and education) were deferred at the end of the quarter resulting in the miss. We are making aggressive reductions to both estimates and especially the valuation multiple in these uncertain times.

Versant has lowered its recommendation to “buy” from “strong buy” and cut its target price to C$9.50 from C$17 per share on ten times the 2010 EV/FCF.

He said:

We are shocked that [government and education sales] missed by such a large margin as the two are generally stalwarts of predictability.

Mr. Breza was surprised Absolute gave 2009 sales contracts and cash from operations guidance, but noted that nervous investors may not believe the company's stated ranges are low enough. Absolute's 2009 sales contracts of C$82-million to C$90-million are less than RBC's C$105-million estimates, while cash flows of C$27-million to C$33-million are far less than the C$39.5-million predictions.

Both analysts maintained faith in Absolute as a growth company despite the steep downturns in price targets.

Canaccord Adams analyst Dushan Batrovic downgraded it from "buy" to "hold" and cut his price target from C$12 to C$4.50.