They say stocks take the stairs up, but the elevator down. That is, gains are steady and incremental, but losses tend to be sudden and sharp.
That’s generally been true for billing software developer Hansen Technologies (ASX:HSN), though earlier this month the share price seemed to catch a rocket:
Source: Commsec
Igniting the boosters was news that Hansen had acquired Canadian catalog software developer Sigma in a deal worth around $166 million. Not only was it expected to significantly boost operating profit from the get-go, but management believed it offered substantial strategic value. Namely, it helped further facilitate Hansen’s move into the telco sector, and offered material cross-sell opportunities into Hansen’s utilities customer base.
Opportunity knocks
Of course, investors couldn’t have anticipated the timing of such a significant acquisition. But shares had been beaten down by a series of underwhelming half yearly results and were trading at levels that appeared undemanding — especially for a business with an enviable assortment of financial metrics and a long-term track-record of value creation. For those whose focus extended beyond the immediate future, it was an enticing opportunity.
Indeed, there’s more than a few parallels between Hansen and Integrated Research, which we highlighted yesterday. Both have a history of strong and consistent revenue and earnings growth. Both deliver high returns on equity, enjoy strong customer retention and recurring cash-flows, and boast rock-solid balance sheets.
And both had seen relatively harsh market downgrades over issues that were more to do with transient, short-term issues and nothing to do with business quality and long-term opportunity.
Opportunities like these don’t come often, but when they do it’s wise for those with patient capital to back up the truck. And that’s exactly what plenty of Strawman members decided to do.
That was then, this is now
Shares may have enjoyed a strong rally in the past month, but they remain below their 52-week high. More to the point, shares are trading on a forward P/E of only 18, based on the consensus guidance of analysts.
Those that have concerns over the health and outlook of the domestic economy will find solace in the fact that most revenues are sourced offshore. Further, Hansen’s products are tightly integrated, mission-critical applications that service customers with highly reliable cash flows. Shares in Hansen may not be immune to a change in market sentiment, but the underlying earnings power tends to be very dependable across the economic cycle.
Ranked #14 on Strawman, shares in Hansen certainly warrant a closer look.
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