Pinned valuation:
18/07/2025
Current share price, $1.60. My valuation, $2.00.
The HiTech Group has consistently grown earnings over 10 years, and H1 2025 was no exception. NPAT was up 29% on pcp to $3.44 million, or 8 cps. A fully franked 5 cps dividend was paid on 20 March, a payout ratio of 62%.
HiTech finished H1 2025 holding $9.7 million in cash and has no debt. There’s enough cash in reserve to pay over 2 years of dividends at the current 10 cps per year, a gross yield of 9% (including franking credits).
Assuming HiTech’s earnings can be sustained in the second half, FY2025 earnings could be approx. $6.8 million, or 16 cps, up 14% on FY2024. At the current share price of $1.60, that’s a very undemanding 10 times PE. I think that’s cheap for a business that has demonstrated double digit earnings growth for a decade, 10% net profit margins, and over 60% ROE currently.
The future for the company is underpinned by a growing ICT industry. According to ChatGPT the future outlook for ICT in Australia is robust, but could be challenged by the demand for skilled ICT workers:
- Australia’s ICT industry is on a robust growth trajectory, with annual growth expected between 7–13%, depending on segment focus and forecast period.
- IT services and enterprise-level ICT spending are the standout growth drivers, fueled by government-led digital transformation, AI expansion, cloud adoption, and cybersecurity pressures.
- Despite strong demand, challenges remain—particularly ensuring a skilled workforce to fill projected ICT roles (~1.2 million by 2030).
Using McNiven’s valuation formula assuming 60% ROE, current shareholder equity value of 25 cps, a fully franked 6.3% dividend (9% including franking credits), 25% of earnings reinvested, and requiring an annual return of 15%, I came up with a valuation of $2.11. At the current share price you could expect an 18% annual return.
If the share price returned to $2.00 (where it was in March 2025) within the next 14 months, and in this time you received three fully franked dividend payments of 5 cps (9% yield), it might be feasible to achieve a 40% return on shares acquired at the current share price. That looks like a reasonably good risk/return proposition to me.
HiTech has a market cap of only $68 million, and is very illiquid. Due to this, it is likely HiTech will trade on a lower PE than it deserves for some time to come. However, does this really matter if the business continues to perform as it has over the past decade, and you are happy to hold for a very long time?
Held IRL (1%), accumulating under $1.60
Source: Commsec
You can track job numbers on their website and there has been a significant inflection up since March.
Last year's profit growth unfortunately was mainly cost cutting - looks like they moved to the cheaper premises from the accounts. This helped improved margins. What you want with founder led but not sustainable of course for growth and why it's great to see the number of jobs advertised increased.
Think FY25 may be flat or slightly up depending on how long it takes to book revenue, but FY26 looks like it will be a strong year if it continues. Election out the way and State and Federal Governments still expanding the number of public servants. Within that too IT is growing faster than other government jobs.