I only heard about this stock 6 months ago. Bought a small parcel of shares at the time on a gut feeling and not much valuation work to be honest, purely because it was the type of company that allows me to sleep well at night as a holder:

• Sikaflex sticky customer base
• Founder led
• Large insider ownership
• No external borrowings
• Healthy cash balance
• Makes people start falling asleep when I tell them what the business does ie. boring but important work

After today's report, I'm getting a little excited about what the future holds for this business if they continue to execute well on the solid base they have built. The following snippets from today's report show they are well positioned to ride tailwinds supported by the Treasurer himself:

• Planning and Building ARR increased by 31% to $18.2 million (FY2024: $14.0 million) + Isovist acquisition
• “Our $33 billion plan will help build 1.2 million new homes before the decade is out.
• https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/building-more-affordable-rental-homes

• Objective Intelligence leverages proprietary and open-source AI models to deliver a wide range of privacy-compliant public sector AI solutions
• Opinion piece: Australia shouldn’t fear the AI revolution – we can turn algorithms into opportunities
• https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/articles/opinion-piece-australia-shouldnt-fear-ai-revolution-we-can

While I often meet AI mentions from ASX companies with a dose of skepticism, it looks like OCL is putting significant effort and resources into actually doing it well (30% of their software revenue spent on R&D), and with good reason in my opinion. The effective use of AI will genuinely be transformative for organisations where manual workflows are nice for keeping people in not particularly challenging jobs, but a killer for productivity (the new buzzword). It may not fully replace the staff that are writing out contracts, planning approvals etc, but anyone who has used recent AI models knows it will do a great job at speeding up those processes. Being well-embedded and trusted within these organisations means that they have a decent chance of having their AI solutions implemented quickly in departments which would otherwise take years to change their practices, especially with a Treasurer chasing productivity gains (tick) and backing AI to help (tick).

As for the reported financials, I agree with @OxyBBear about the results being met with a nice share price bump mainly due to the ARR beating consensus expectations. While Revenue grew 5% in line with wage costs, there's a decent chance we'll see that ARR growth pulling up total revenue growth in years to come, especially with 34 clients with potential to convert to the SaaS platform. IF they can manage their costs and convert that significant R&D expenditure into even more significant revenue, then we'll see that nice revenue/cost jaws widening effect, with accelerating EBIT and share price to follow.

Here's what I am keeping an eye on in future reports:

• Monitoring the 15% ARR vs 5% revenue growth gap. I think this reflects their stated transition from services to cloud/recurring revenue, as well as contract implementation revenue taking time to flow through after signing government contracts.
• Signs that R&D is converting to revenue
• Cost-Revenue jaws widening

Time for an attempt at forward valuation. I've gone with the EV/ARR Multiple Valuation method which seems appropriate for their intentional and rapid adoption of Saas model

Current Metrics (FY25)

ARR: $120.2M

Market Cap at $22: $2.1B

Less Net Cash: $99M

EV: $2.0B

Current EV/ARR: 16.7x

FY26 ARR Projections

Bear Case: $134M ARR (11% growth - competitive threats, R&D doesn't convert to ARR)

Base Case: $138M ARR (15% growth - matches recent trajectory)

Bull Case: $146M ARR (22% growth - accelerated by AI/housing policy, new contracts)

Bear Case

FY26 ARR: $134M x 16.7 = $2,238M EV

Plus Net Cash: $103M

Share Price: $24.50

Base Case

FY26 ARR: $138M x 16.7 = $2,305M EV

Plus Net Cash: $105M

Share Price: $25.20

Bull Case

FY26 ARR: $146M x 16.7 = $2,439M EV

Plus Net Cash: $110M

Share Price: $26.70

Would welcome any feedback or other opinions on valuation. I kept it pretty simple and didn't factor in the non-recurring revenue because of laziness. Assuming cash may not change too much since they will either spend on R&D or maybe even bump up dividend?

@BoredSaint Got to admit I only briefly looked at the earnings result and was surprised with the magnitude of the share price reaction (+18% at time of writing) as the results only met my expectations. Delving a little deeper it appears the FY2026 +15% ARR growth target is above the consensus of +12% which may lead to forecast earnings upgrades.

Held.