Objective/Altium comparison

I have been doing a comparison of Objective (OCL) to Altium (ALU) as they are both high quality software companies that have shown good growth over the last 10 years. Both business I have been following for some time. Whilst in very different industries they both have excellent recurring revenues and stable management.

Differences/Quality

• OCL is a software provider to government mainly, whilst ALU provides software to design circuit boards to industry.
• ALU has many more clients and is a lot more diversified in my opinion than OCL, who concentrates on govt, which is sticky but the loss of a large customer could be a huge headwind.
• Both have great management but OCL seems to be run by a CEO who has a lot of control, whereas ALU has an experienced diversified board. OCL almost runs as a private company, where ALU is engaged with the market and transparent.
• ALU has had a great year in FY23 growing at almost 20% where OCL's revenue has been pretty flat.
• OCL is forecasting 15% growth over the next few years and ALU's USD500m target indicates growth of around 25% out to 2026

Valuation

Assuming management of both companies can achieve their target growth, then by 2026 ALU will be on a PE of 24 assuming a NPAT margin of 29% and OCL will be on a PE of 22 assuming the same margin. I have used OCL's updated financial model to capitalise R&D and am assuming they are similar in this way. Share price of OCL is $11 and ALU $42 at this time.

Conclusion

Whilst both are very high quality businesses and should provide good returns if they can meet their targets, ALU to me is more attractive and better value at these levels. ALU is likely to grow more than 50% faster than OCL and is on a similar multiple three years out to OCL. ALU is a more diversified business with a more mature board and is more transparent with the market.