Consensus community valuation
$3.41
Average Intrinsic Value
3.6%
Undervalued by
Active Member Straws
#Contract renewal
Added 3 months ago

Integrated reserach has disclosed its largest ever deal; a 5-year US10m renewal and extension contract with long-standing customer JP Morgan Chase (a client of over 25 years).

For context, IRI reported ~US$35m in revenue for the half just ended. 

It's only a single data point, but a sign of IRI's defensive revenue stream and the continued relevance/importance of its offering.

Announcement here

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#HY2020 Results
Last edited 4 months ago

Integrated Research has issued profit guidance for the 6 months ending December 31.

Revenue is expected to be between 4-6% higher at $52.5m- $53.5m.

Net Profit is expected to be flat, coming in between $11.5m to $12m, compared with $11.7m in the prior corresponding half.

At the AGM last year, IRI only said that it's sales pipeline "supports FY20 revenue and profit growth over the prior year"

Last year, first half revenue grew 10% with a 26% lift in NPAT.

ASX announcement here

 

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#HY2020 Results
Last edited 3 months ago

Results came out towards the upper end of last year's revised guidance, with Net profit up 1% to $11.8m. This was on a 6% lift in revenue to $53.2m and a 7% rise in license sales. With 95% of revenues sourced offshore, a weaker AUD was very helpful.. 

The groups largest segment, Unified Communications returned to growth with revenue up 10%, and the outlook for the full year is positive.

Payments revenue (which represents about 1/7th of the total) was down 14% after a very strong prior period, but remains roughly double that of 2018's half and management said there were clear signs the revenue stream is growing.

The Asia Pacific region did especilly well with 62% growth, and CEO John Ruthven said he expected "a strong result for the full year based on the quality of the second half pipeline".

Cashflow from operations grew 28%, and net margins remain steady at an impressive 22%. The company remains debt free and has $7.6m in cash.

This is a company with a long history of delivering steady and profitable growth, it has a strong market position and very sticky customers. Not many company can maintain net profit margins >20% without enjoying some pretty major competitive advantages.

While they hit some operational snags a couple years back, there's nothing structurally wrong with this business in my view.

Results presentation here

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#Bull Case
Last edited 3 months ago

Very strong business with a 30 year pedigree. It is the global leader in performance management software

  • AUD$7m in cash, zero debt.
  • 95% recurring revenue
  • High retention
  • Double digit earnings growth over an extended period, with continued strong outlook
  • Big R&D investment -- >20% of revenues -- ensuring it remains best in breed and bringing new products to market. 
  • Most sales earned offshore (benefits from falling AUD, and little exposure to domestic economy)
  • Well diversified across geographies, industries and clients
  • Net margins of >20%, having steadily increased over the past decade
  • Share count has been flat for the past decade -- growth has been extremely capital efficient.
  • Pays a reliable fully franked dvidend
  • Dominant market position

Lots to like

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#FY2019 Results
Last edited 3 months ago

A good result.

Revenue grew 11% and cracked $100m for the first time. NPAT increased 14% to $21.9m (a heck of a margin, which is up slightly on last year).

A weaker AUD helped, but in constant currency the profit was still 12% stronger.

The company remains debt free with $9.3m cash on hand.

The dividend was increased by 11.5%.

You can read the company announcement for more detail, but it's all quite positive save for a dip in the UC segment.

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#New CEO and Trading Update
Last edited 3 months ago

15/5/2019

Integrated Research has appointed Mr Ruthvan as the new CEO. He will formerly start in early July.

He was previously the Operating Officer of Global Sales at Technology One (ASX:TNE) (He worked there for < 2 years) and prior to that the MD of SAP in Australia & New Zealand.

Integrated Research also revealed that the 3rd quarter showed a "strong uplift" compared to the previous corresponding period, with three >$1m deals secured during the period.

Full announcement is here

 

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#ASX Announcements
Last edited 3 months ago

Profit guidance announcement Here

Integrated Research expects revenue to be flat for FY18, with profit growth of 1-5%, citing a cyclical downturn in infrastructure and underperforming European operations.

After such a solid first half – where revenues and profits were up 5% and 20%, respectively -- it suggests a much weaker than hoped second half. The market’s reaction has been brutal, sending shares down over 24% lower, a good 40% below the 12-month high.

It’s disappointing, but I don’t think the quality of the business has changed, nor it’s longer-term growth potential. Indeed, we should remember that this kind of thing has happened to Integrated Research before.

Earnings dropped lower in both 2013 and 2014, and yet have still averaged 13% growth over the past decade. Growth tends to be step-like.

As replacement/upgrade cycles come and go, and customers deal with their own budget and strategic considerations, contract wins can easily fall into later than expected reporting periods. Additionally, investments in sales and systems take time to bear fruit, and can dampen margins in the short term.

Sales movements are further exaggerated at the bottom line due to the inherent operating leverage in the business. With a relatively fixed and scalable fixed cost base, at around two thirds of sales, it takes only a 3% move in sales to affect a 10% change in net profits, roughly speaking.

So sales can be tough to forecast in any given reporting period, and earnings even harder. Which is probably why – appropriately -- management don’t issue profit guidance with results. It’s maybe also why the market has historically found it tough to value shares (the PE has ranged between 8 and 25 since 2011).

However, given a solid industry tailwind, upsell opportunities to existing customers, significant ongoing R&D and product development, as well as positive operating leverage (ie growing net margins) – I believe Integrated Research will deliver significantly higher earnings in the years ahead. And, as an adder kicker, a weaker Aussie dollar may help (95% of earnings come from offshore). 

Importantly, as growth resumes shares will again attract a much more optimistic market multiple.

It’s possible, perhaps likely, that shares will continue to wallow for some time yet. There's no formula for picking the bottom! But with 87% recurring revenues, no debt and >$9m cash, IRI is extremely well placed to weather any sales dip, and continues to have a bright future.

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#2019 Half Year Results
Last edited 3 months ago

Integrated Research has posted another record revenue result for half-year 2019. 

For the the 6 months through to 31 Dec, the business posted a 10% rise in revenue to $50.3m with net profit coming in 26% higher at $11.7m (both in Australian dollars). This is at the very top of recent guidance.

With 95% of revenues sourced offshore, a weaker Aussie dollar certainly helped boost the result. On a constant currency basis, revenue was 5% higher and NPAT was up 15%.

European operations, which were previously struggling, seemed to have turned the corner, with revenue in the region growing 14%.

Unified Communications -- the largest segment -- did however see a modest decline, with revenue down 3%, although management said the full year outlook was still positive.

Margins improved, cash flow was strong, sales pipeline is increasing. Still debt free with cash of $9.6m.

See ASX announcement here

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#FY2019 Results
Last edited 4 months ago

Integrated Research is in the process of finalising its FY19 results and has provided the following guidance to the market.

A record sales result of $100-$101.5 million, which is growth of 10-12%

Record net profit of between $21.2-$22 million, which is growth of 10-15%

License sales were up between 17-20%.

At the time of writing, shares were down ~10%. So it seems the market was disappointed. There was no specific guidance issued by the company previously, but according to the consensus analyst forecast on CommSec, EPS was expected to come in at 13c for FY19. On teh guidance given, it looks like it will just miss this at 12.6cps.

At the time of writing, shares were at $3.06, which is a PE of 24. That doesnt strike me as expensive given our low rate world and double digit sales and profit growth -- especially for a company with such pedigree, strong balance sheet, dominant market position and level of profitability.

See full announcement here   

 

 

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