Elecosoft reports stellar FY23 results with record recurring revenues and successful M&A
At last November's Mello investor conference in London, I presented Buildtech software developer () as my best stock idea for the next 2-3 years. I've owned the shares (2nd largest position) since 2015 - and after today's 'in line' 2023 results and positive outlook - have no reason to change this optimistic view.
Indeed, the business generated 5% top line growth (7% LFL) to £28m (£26.6m LY) in 2023, driven by a 17% LFL jump in ARR to £22.6m (£18.2m LY) - which has climbed further to £24.5m in Q1'24 – offset by the ongoing SaaS transition (74% of revenues are recurring vs 56% in 2021) from perpetual licenses.
Additionally, due to strong unit economics (90% gross margins, up 1.4% YoY), adjusted EBITDA and EPS came in 13% and 11% higher at £6.1m (£5.4m LY) and 4.0p/share (3.6p) respectively.
Better still, free cashflow rose to £4.1m (100% of adj EBIT), leaving net funds at a healthy £10.9m as at Dec'23 (or 13p/share) vs £9.4m in Jun'23, whilst equally providing ample firepower to execute synergistic M&A. Capitalised R&D was £2.25m vs £1.8m of amortisation in the period.
This is just the start though. Prior to today's RNS, house broker Cavendish were forecasting turnover, adjusted EBITDA, and EPS to increase to £44.1m (16% CAGR), £9.9m and 7.3p (22% CAGR) by 2026 - which using modest sector multiples of 1x PEG and 4x EV/sales, would deliver a hypothetical valuation range of between 160p to 200p/share. Cavendish’s target price is 160p.
Interestingly too, there is consolidation across the industry. In fact, only last week the Wall Street Journal reported that Schneider Electric and Bentley Systems were in discussions to merge their software businesses. Here, Bentley trades at circa 13x EV/sales vs 2.1x for , highlighting once again the upside potential (re mean reversion).
Lastly, continues to expand its geographical footprint (eg US and Eastern Europe), add core capability (eg Vertical Digital) and improve its award winning software (eg inclusion of AI).
CEO Jonathan Hunter commenting: "The Company performed extremely well in 2023 and delivered record levels of organic growth, while securing future revenues through the increased levels of subscription licences. We continue to seek acquisitions that augment our customer base, complement our technological arsenal, expand our geographic footprint, and advance our SaaS platform."
Chairman Mark Castle adding: "International markets continue to be robust and we have seen a positive start to the year. As at 31 March 2024, our ARR was £24.5m. Looking forward, the Group is trading in line with 2024 expectations."
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