Eleco delivers record 2024 results: double-digit growth in revenue, profit, and dividends
There is no such thing as a 'dead cert' when investing in smallcaps. Instead, the 'hit rate' is often <60%, with the rest losing money. Sure, this volatility can fray nerves a little, but long term (smoothing out the ups and downs), annualised returns can be 10%+, higher than most other asset classes.
What's more, there are a few stalwarts that possess the rare qualities of secular growth, rock solid balance sheets, attractive profit margins, strong cash generation, and importantly resilience during periods of economic turmoil.
For me, one such company is () , which I have owned for a decade. It is a one stop shop software developer for all things Buildtech, project management, property asset management, and AI visualisation - sporting a robust position in an expanding sector (digitisation of construction), underpinned by 90%+ retention rates, 77% recurring revenues, and a loyal blue chip customer base.
This morning, posted record FY'24 turnover, with ARR and LFL sales rising 18% and 9% LFL to £26.6m (£22.6m LY) and £32.4m (£28.0m LY) respectively. Better still, Net Revenue Retention (NRR) came in at 109% (104% LY), implying healthy client up/x-selling, while adjusted EBITDA margins and EPS jumped to 22.2% (20.7% LY) and 5.1p/share (+28%, 4.0p) thanks positive operating leverage. All above analyst consensus estimates.
Elsewhere, year-end net cash closed at £14.0m (proforma £8.9m after the £5.1m PEMAC acquisition in Jan'25), providing ample firepower to continue its M&A strategy.
CEO Jonathan Hunter commenting: "The digital transformation of the built environment remains a considerable and exciting opportunity for Eleco. The purchase of Vertical Digital brought agile and innovative software development, technical consulting and upskilling capability to our software solutions. The post year-end acquisition of PEMAC then broadened our Asset Management capabilities and customer base. Board expects to continue to perform in line with full-year expectations."
Going forward, Cavendish (target price 200p/share) is forecasting FY25 turnover, adjusted EBITDA and EPS to rise to £39.6m, £9.1m and 6.5p/share, climbing to £46.7m, £10.6m and 7.9p in 2026 - potentially putting the stock on 3x-5x EV/sales, which would generate an intrinsic worth of 150p-250p/share. In comparison, larger listed peers Autodesk, Nemetschek and Bentley Systems trade on 9x-11x multiples vs 2.4x for (at 121p).
Finally, should be a major beneficiary of the AI revolution, not only helping it deliver new and more advanced software applications, but also accelerate the product development process. Plus, the Buildtech software sector is consolidating too, so don't be surprised if one day someone comes knocking at the door. Who and how much would be anyone's guess, albeit with almost 90% gross margins, the synergies would be material.
Following today's better-than-expected FY'24 results, CEO Jonathan Hunter and CFO Neil Pritchard kindly take me through:
00:00 What the business does, its USPs, growth drivers, Trump tariffs and US expansion
05:30 Financial highlights
10:25 Strategic rationale and integration of Vertical Digital and PEMAC acquisitions
13:55 New product development
16:40 Outlook for 2025 and inherent resilience of the business
18:10 Closing remarks and potential valuation upside
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