Consensus community valuation
$3.90
Average Intrinsic Value
34.9%
Undervalued by
Active Member Straws
#Trading update
Added a month ago

Hansen has provided a trading update.

It expects no material downturn for its customers that continue to provide essentail services.

for FY20, revenue is expected to be between $298-300 million, while EBITDA is expected to come in around $75-76 million.

This follows the withdrawal of guidance in early April. Back in February it was guiding for revenues of $300-305 million, with EBITDA of $72-77 million.

So it looks like the impact of COVID-19 has been relatively benign for Hansen.

You can read the announcement here 

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#HY20 Results
Added 4 months ago

Hansen saw a 28% lift in operating revenue to $144.4m for the first half of 2020, with underlying EBITDA up 20% to $34.1m (excluding AASB 16. If included, EBITDA would be $37.5m)

This was driven by a record number of new project wins in the half, but mainly because of the acquisition of Sigma in June last year. Excluding Sigma, revenue would have been 2.7% lower and EBITDA would have been 3.2% lower.

Due to a higher interest charge (they borrowed a lot to fund the Sigma acquisition) and higher depreciation, Net Profit (excluding amortisation of acquired intangibles) was only 3% higher, which translates to a 2% lift in EPS due to a highershare count.

For the second half, managment said that they expected "a strong uplift in revenue relative to the first half, along with a strengthening EBITDA margin".

That being said, Hansen has lowered guidance for full year revenues to between $300-305m (down about 1.6% at the midpoint). However EBITDA guidance is for $72-77m (ex-AASB 16), which is roughly 2% higher than previous guidance.

That indicates a full year gain to EBITDA of 33.5%. 

The company has so far repaid $14m in debt since the end of last financial year, which now sits at ~$177m. 

I estimate FY NPATA to be ~$38m, which gives an EPS of ~19c.

Results presentation here

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#Bull Case
Last edited 4 months ago

Hansen enjoys a lot of the attractive characteristics associated with software companies, and has a long track record of attractive shareholder returns.

FY19 saw a bit of a dip in profits -- which were well telegraphed -- but over the medium to longer term i expect upper single digit growth.

Given the nature of customers, and the tight integration of products, cash flows should be very reliable. Moreover, Hansen is little exposed to the domestic economy.

Management have a lot of shares and are welll aligned.

A great stock for the bottom drawer.

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#FY19 Results
Last edited 4 months ago

FY19 was weaker as forecast by the company, and with the substantial acquisition of Sigma contributing only 1 month's worth of earnings.

Overall, sales were essentially flat, or down 1.9% excluding Sigma. Nevertheless, recurring revenues were up modestly.

Underlying NPATA was 12.8% lower (Hansen traditionally ignores the amortisation charges of acquired intangibles, such as customer lists, which I think is reasonable given it's retention)

The expense base was flat, and are expected to reduce in the coming years thanks to the investment in the vietnam development centre.

Looking ahead, management said they expect revenue to grow by ~33% and EBITDA to grow by ~32% due to a full year contribution from Sigma. Accounting for new shares, and all else being equal, that should transalte into FY20 EPS of roughly 22cps.

Full ASX results presentation is here

 

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#Sigma Acquisition
Last edited 4 months ago

Hansen today announced the acquisition of Canadian catalog software provider Sigma.

ASX Investor presentation is here

The purchase will be paid for in cash, will cost $166.2m and is being funded by a new $225m credit facility from RBC Capital markets.

The cost represents an EV/EBITDA multiple of 8.3 -- which is far from cheap for a privately held company, and only slightly below what Hansen itself trades for (it's on a EV/EBITDA of 9.1, using the trailing 12 months of EBITDA).

It was also purchased of a Private Equity company -- Birch Hill -- which has owned the business since 2015. And that's often a poor sign (PE companies seldom make any long term capital investments into businesses they run, and simply look to dress up the metrics and then flick to a new buyer...)

The strategic rationale is that it significantly expands Hansens exposure to the Telco industry -- more than doubling the proportion of revenue it derives from this sector. Moreover, Hansen reckon it will give them significant cross sell opportunities into its Energy and PayTV customer relationships. Sigma's product sits adjascent or withing Hansen's core billing and Customer management offerings.

The acquisition is expected to be EPS accretive -- excluding the amortisation of acquired intangibles (such as customer lists).

Hansen is extremely well practiced at making acquisitions -- its done loads of them -- but this is definitely a material purchase. Based on the trailing 12 months of operating earnings, Sigma should boost Hansen's EBITDA by ~28% (all else being equal). 

So very positive from that standpoint. The risks, though, are that it will be difficult to integrate, will require a lot of investment, they dont achieve the cross sell benefits they expect, there could be writedowns to carrying value if the business underperforms.

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#HY2019 Results
Last edited 4 months ago

The first half result was pretty ordinary in comparison to the previoius corresponding period, with Revenue down 5% and NPAT down 28%.

That being said, management had previously flagged a drop in the full year revenue and has still reiterated guidance.

Relative to the preceeding half (H2 2018) revenue was flat and profit up 18%. Thus the operating margin has improved half on half, from 22.7% to 25.3%.

Debt was further reduced, leaving the business with only $0.6m in net debt.

The market's reaction has been brutal, but I don't see any structural issues wth the business. Just a re-rate based on lower than expected growth, which isnt unreasonable. I'm also lowering my valuation.

As of Friday's close ($3.03), shares are on an PE of 17.8 and a yield of 2%.

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#Overview
Last edited 4 months ago

Hansen is a software developer focused on billing solutions for utilities, energy and telco companies.

It has a long pedigree of delivering double digit sales and earnings growth, which has underpinned fantastic log term returns for sharehlolders. 

Acquisitions have driven much of their growth, although these have been mostly value accretive for shareholders and they have achieved this with minimal debt and share issues. 

Specifically, they have made 9 major acquisitions in the past decade, at a cost of $187m. That's funded by $76m in equity, $27m in debt and $84m in operating cash flow.

It's products are very sticky and scalable, with 65% of revenues recurring in nature.

It is led by Managing Director Andrew Hansen, the son of the founder, who has held the top job since 2000. He owns ~17% of all shares.

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