Pinned straw:
Finally got round to reviewing the position with HSN and determining what action to take.
Discl: Held IRL and in SM
1HFY24 Summary
- Robust 1HFY24 results with growth in revenue, underlying EBITDA margin, strong cash generation, debt repayment and returning of cash to shareholders, underpinned by stable and predictable revenue, very low customer churn
- Net cash positive for the first time since 2017, $8m, pre-powercloud acquisition where cash reserves of ~$45.1m exceed debt of $36.9m
powercloud Acquisition Feb 2024
Market has been spooked by the powercloud acquisition in Feb 2024
The strategic rationale for the acquisition makes sense (1) buying a robust, modern and entrenched suite of complementary billing software (2) opens access to the broader DACH region markets (3) at a stage in powercloud’s maturity that will benefit from the more robust Hansen discipline and processes to become more efficient and hence more profitable
Downside:
- Requires ~$20m more investment over and above the upfront acquisition price of EUR30m
- Will adversely dilute short term FY24 underlying EBITDA by ~$7-8m, bringing FY24 underlying EBITDA margin to +26% from the normal pre-acquisition underlying EBITDA margin of ~+30%
HSN has a strong proven record of successfully integrating acquisitions into the broader HSN business - this acquisition should be no different. Must however, sit through the risk of margin dilution in the next 12-18M before powercloud can be fully earnings accretive.
Current Position and Action
- Price has been drifting towards a ~3-years old well-supported zone between ~$4.21 and ~$4.42
- this zone was a strong resistance zone for a good 18M prior to mid-Mar 2021 when the resistance was penetrated
- Since Mar 2021, this has been a strong support zone, successfully defended in Oct 2023, then April 2023
- If price falls into, or in the vicinity of the top up zone, increase position from current ~1.8% to 2.5%
thunderhead
Thank you for the update @jcmleng. I am a long time watcher, having never held the stock though it has many desirable attributes.
Fundamentally, I still find the price somewhat on the higher side relative to the modest growth outlook for a business like this.
Just curious - you have identified a well-defined zone of support/resistance on the chart going back a few years. What if you accumulate as planned, and the price then falls through that level clearly? Do you take any action (technically inclined traders/investors would either be stopped out or exit their position manually if it falls below a well-defined risk level on the chart), or do you just ride it out base on fundamentals, even if you didn't buy at the ideal point (maybe even add more at a lower price of course if you have room). This is something I constantly battle with, and don't have a good answer for, though I err on the side of doing nothing i.e. buying and holding.