Valuation 2/6/26, current price $0.235, fair price $0.39, buy price $0.33

Here's a brief re-valuation after their trading update. I've revised down my expectations vs those in my earlier valuation below.

Bull case now 15% CAGR, 10% NPAT, PE 25, 25% dilution over next 5 years, giving $0.62 fair price (with 10% discounting) and ROI of 36%.

Bear case now 8% CAGR, 6% NPAT, PE 15, 25% dilution over next 5 years, giving $0.16 fair price and ROI of -2%.

Balancing across cases, I get a fair price of $0.39, and to deliver a 15% ROI I get a buy price of $0.33. At current $0.235 I get an ROI of 25% pa.

So, a hold for now with the negative price momentum. But maybe a destination if/when I have free cash once price stabilises.

***ARCHIVED PREVIOUS VALUATIONS***

Valuation 23/3/26, a Buy, last close $0.35, fair price $0.57, buy price $0.47

Austco is a Strawman favourite, in the top 10 holdings. I’ve lowered my valuation, but only out of an abundance of caution in trimming my bull case. I believe the company is still in a strong Buy range. I still hold with high conviction and I’m still accumulating. There’s a good chance Austco will 4x over the next 4 years. Of course, as with all micro caps it could also halve in value. But with no debt, a healthy cash balance, profitable, recent multi-year growth exceeding 20% pa, and an undemanding PE around 13, the opportunity here looks favourably asymmetric.

Bull case

• Revenue is rocketing on the back of organic growth and acquisitions. Up 31% in 1H and averaging over 20% pa over last 5 years.
• All profit measures (EBITDA, NPAT, EPS) are up about 60% in 1H.
• It’s refreshing to see financials with no mention of “underlying” or “adjusted”.
• NPAT was over $4m, at 9% margin, and on track for perhaps $10m for FY26.
• Gross margin over 50%, so should show leverage with ongoing growth.
• No debt, with over $15.2m in cash.
• Ongoing R&D ($2.5m in 1H), accounted for reasonably with roughly half expensed.
• Industry tailwind with healthcare digitisation growing >20% pa, plus an ageing global population.
• They have communicated guidance of 10-14% organic growth for FY26, in addition to the impact of an acquisition that occurred in May 25.
• With a PE around 13, the price is undemanding for a fast growing profitable business.
• Valuation:
• Revenue: Let’s stay FY26 revenue growth tracks 1H growth around 30%. With organic growth targets in low teens, plus some further acquisitions, let’s say CAGR out to FY30 progressively declines, averaging around 20%. That gives us FY30 rev around $200m.
• Profit: Recent NPAT margins have been in high single figures, with 1H at 9%. Let’s say they can get that up to 10% with further growth by FY30, giving $20m.
• Multiple: With FY30 growth around 15%, plus a percent or two of dividends, a PE of 30 is reasonable, giving an FY30 market cap around $600m.
• Dilution: Assuming dilution improves, but stays high, let’s allow for 25% dilution between now and FY30.
• Return: The above values give an FY30 share price of $1.27. Discounting by 10% I get a current fair price of $0.87. Using a 15% discount rate I get a buy price of $0.72. Using the last close price of $0.35, ROI will be 36% pa.

Bear case

• My biggest concern is that a lot of recent growth has come from acquiring resellers. The long-term viability of this direction is unclear, with risks including cannibalising of revenue, reducing margin (although admittedly this did not occur in 1H), putting itself into competition with remaining resellers, and adding new business lines (such as security hardware sales and installations) which could well be diworsification.
• For the first time in many years the order book has contracted. It is still high but the relentless upward push has, at least temporarily, reversed.
• Another significant concern is that annualised recurring revenue is only about 10% of total revenue, and this % hasn’t grown over last few halves. Most revenue comes from one-off sales of hardware. So Austco needs to continually find lots of greenfield clients to grow.
• There has been massive growth in outstanding shares to fuel acquisitions and share based payments, almost doubling over the last 10 years.
• The CEO is expensive at around $1m, with only 6% hardwired to EPS and TSR targets.
• Valuation:
• Revenue: FY26 revenue growth is likely to be strong given recent acquisitions. But let’s say it drops from 1H growth of 31% to around 22% for full year as they rationalise some components of recent acquisitions. Ongoing perhaps revenue drops to the low end of their guidance for organic growth, let’s say 10% out to FY30. That gives us FY30 rev of $145m.
• Profit: A bear stance might see NPAT drop below recent range to perhaps 6% in FY30 as they struggle to drive ongoing growth and integrate acquisitions.
• Multiple: With growth around 10% in FY30 a PE of 20 is reasonable, giving a market cap of $174m.
• Dilution: Using the same assumption as the bull case, we’ll allow 25% dilution between now and FY30.
• Return: The above values give an FY30 share price of $0.37. Discounting by 10% I get a current fair price of $0.26. Using a 15% discount rate I get a buy price of $0.21. Using the last close price of $0.35, ROI will be 2% pa.

Base case

• If I weigh evenly across the above bull and bear cases, I get an FY30 share price of $0.82. Discounting by 10% I get a current fair price of $0.57. Using a 15% discount rate I get a buy price of $0.47. Using the last close price of $0.35, ROI will be 23% pa.
• This is what I want to see over the next 12 months:
• Revenue exceeds $100m in FY26, with NPAT around $10m.
• FY27 growth will be dependent upon organic growth plus new acquisitions. Ongoing organic growth needs to track in low teens. And at least one or two acquisitions will be needed to be on track for at least $170m rev in FY30.
• They need to maintain NPAT margin of at least 8% to demonstrate operating leverage and the wisdom of recent acquisitions.

Valuation 11/8/25: a "Buy" with current price of $0.37, a fair price of $0.70, and buy price at $0.56

• Austco had a solid recent update and guidance. FY25 results look like they will be strong, on the back of both organic and acquisition growth.
• However the quality and long-term impact of the recent acquisition binge of 3 resellers is yet to be determined. Investors need to monitor closely whether they become a drag on growth.
• If recent success is maintained, Austco could easily 4x in the next 5 years. But there is also a bear case where the share price halves.
• Weighing across bull, bear and base cases, at current price of $0.37 I estimate a 25% pa ROI over the next 5 years, a current fair price of $0.70, and a buy price around $0.56 to achieve a 15% required rate of return.

Bull case

• Revenue has grown substantially in the last 5 years, accelerating in the last 3 years, with a 5-year revenue CAGR of 20% pa.
• Unfilled contracted revenue has also grown, from $20m in Feb ’23 to currently around $56m, providing confidence that revenue growth will continue.
• Growth is coming roughly evenly from both organic growth and acquisitions.
• The company is profitable, with EBITDA about 16%, and roughly half of that flowing through to cash flow and NPAT.
• Gross margin is about 50%, providing the opportunity for leverage with scale.
• Negligible debt and interest expense, with current assets exceeding total liabilities.
• Key personnel have moderate skin in the game, with the CEO Clayton Astles owning about 1% of shares worth about $1.5m, the CFO Brendan Maher owning about 0.8% worth about $1.1m, and the Board also owning a total of about 0.8% of shares worth $1.1m.
• It appears that recent acquisitions have performed well based on larger than expected performance-based earnout payments. The 3.5x EBITDA paid for acquisitions suggests sound capital allocation.
• A healthy 7% of revenue is spent on R&D of products and software, with about half if it capitalised, half expensed.
• The recent improvement in share price has lagged the sharply accelerating revenue and profit growth.
• Valuation:
• The last 3 years have seen >30% pa revenue growth. If we take a bullish view and assume this drops to a still strong 23% CAGR over the next 5 years, we get a FY30 revenue around $230m.
• With scale, NPAT could grow to around 13% giving $30m in FY30.
• If Austco is able to maintain 20% growth, a PE of 40 could be possible, giving FY30 market cap around $1.2b. Allowing for 40% dilution (see reasons for such a large dilution in bear case below), that would be a FY30 share price around $2.30.
• Using a discount rate of 10%, a fair current price would be around $1.40. 

Bear case

• Recent acquisitions, that have helped goose revenue growth, are of Austco resellers. Hence the increased revenue is coming from services (sales commissions, installation and maintenance), not product. These business had lower gross margins at time of purchase, and have had a small negative impact on Austco gross margin.
• The acquisitions are not a clean fit for Austco. Although the companies are Austco resellers, they also sell, install and maintain products of other suppliers who are either competitors or in unaligned services (eg the recently acquired G&S Technologies does ICT auditing, infrastructure for education facilities, general commercial ICT upgrades, surveillance systems). This leaves Austco with the undesirable choice between continuing to support a now wider range of products and services, or dropping revenue and margin from acquired companies if these unaligned offerings are not maintained. It is also possible that by purchasing resellers, Austco may offside other resellers who subsequently reduce their sales of Austco products.
• Annualised contract revenue, from software and support, is low at around 12%. The bulk of revenue comes from one-off equipment and installation sales.
• There has been substantial dilution of outstanding shares for many years, almost doubling outstanding shares in the last 10 years. Shares outstanding have grown from 193m in FY15 to 262m in FY20 (6% 5-yr CAGR; revenue declined 1% pa during this time) to 364m at end of FY25 (7% 5-yr CAGR; revenue grew 20% pa during this time).
• The CEO’s salary, approaching $1m, is high for a company with market cap of $137m. Less than 6% of total salary comes in the form of performance rights which are contingent upon EPS and TSR targets. The rest of the salary comes from a fixed component and an arbitrary cash bonus determined by the Board.
• Valuation:
• If revenue growth drops to 10% pa we’ll see around $130m revenue in FY30.
• Let’s say NPAT drops from currently around 7% to about 5%, giving around $7m in FY30.
• With a PE of 18 we get a market cap around $120m. Allowing for 40% dilution, that will be a share price around $0.23.
• Using a discount rate of 10%, a fair current price is around $0.14.

Base case

• My base case sits between the bull and bear cases above.
• Recent revenue and profit growth have been strong, although it is unclear what level of growth is sustainable. The quality of recent acquisitions is currently unclear and their impact needs to be monitored closely.
• I’ll assume FY25 revenue around guidance of $81m, with 5-year CAGR of 16% to around $170m in FY30.
• With net margin of 9% (slightly higher than current 7%, allowing for scale benefits), PE of 30, and dilution of 40%, I get an FY30 market cap around $460m and share price of $0.90.
• If I weigh roughly evenly across bull, bear and base cases, I get an expected ROI of 25% pa over the next 5 years.
• Applying a 10% discount rate, I get a current fair price around $0.70.
• If I apply a 15% required rate of return, I get a buy price around $0.56.