Altium has reported a 10% lift in revenue. As forshadowed in June, this was below prior expectations and certainly well below the average top-line rate over the previous 3 years of ~22%.
The group did manage a record EBITDA margin of 40%, which helped net profit grow by 12%, though this too is well below prior year's growth rates.
Altium is targeting (at the midpoint) revenue from existing operations of AUD$596m (at current FX rates), with EBITDA of AUD$253 by 2025 -- which represents annualised growth of 17% and 19% resepctively, and excludes any additions from acquisitions.
That's still very attractive -- especially in the context of their balance sheet strength ($US93m cash / no debt) and their high levels of high margin recurring revenue.
But then again, all this would seem to be "in the price".
EPS in Aussie dollars (normalised for a one-off tax adjustment) = 0.59c, which puts shares on a PE of 55. Shares are now on a P/S ratio of 16x. However, assuming they can maintain an (outstanding) 30% net margin and hit US$450m in revenue by 2025, the company could be generating an EPS of AUD$1.47 by 2025.
If shares could sustain a PE of 35 at that time, you could consider shares fairly valued. Of course, anything less than these assumptions would undermine shareholder returns.
There's a lot of detail in these results -- which you can dig into here -- but for me I'd like a bigger margin of safety before taking a position.
Altium said it expects some headwinds from the ongoing restrictions associated with COVID-19, which will impact performance for the final quarter.
SME's cash preservation priorities are expected to impact sales in May and June, which are typicaly the strongest months for sales.
Importantly, long-term aspirational target of US$200m in revenue for FY20 is now a low probability. That's a big change from the reiteration of this target only one month ago.
I really like the company, but feel shares are overpriced -- especially in light of today's update.
ASX announcement here
Altium Achieves 10% Revenue Growth and Exceeds 50,000 Subscriber Target
Sydney, Australia - 14 July 2020 - Electronic design software company Altium Limited (ASX:ALU) updates the market on its unaudited sales and revenue for the full year ended 30 June 2020. Altium achieved revenue growth of 10% to US $189 million with solid performances delivered in core business units and key regions during the challenging COVID-19 environment.
Altium delivered record growth in new Altium Designer seats and subscriptions to exceed its 50,000 subscriber target. Other highlights include:
Comments from Altium’s CEO Mr Aram Mirkazemi:
Altium CEO, Mr Aram Mirkazemi commented: “Altium’s strategy of providing attractive pricing and extended payment terms to support our customers during COVID-19 and to drive volume to support our pursuit of market dominance has been rewarded. Altium achieved strong growth in new Altium Designer seats and record growth in our subscription base to reach well over 50,000 seats on subscription”.
Mr Mirkazemi further commented: “Altium has not been immune to the uncertainty and the evolving impact of COVID-19, however, as a global high-tech company, geared to work remotely and with a robust and highly adaptable business model, we were able to deliver a strong performance through COVID-19 conditions - maintaining our unbeaten record of eight consecutive years of double digit revenue growth, and extending it to nine straight years”, stated Mr Mirkazemi.
“While COVID-19 prevented us from reaching our long standing aspirational goal of $200 million in revenue, conditions surrounding COVID-19 have dramatically accelerated our movement towards market dominance and the implementation of our transformative agenda for the industry”, said Mr Mirkazemi.
“We accelerated the roll-out of our new cloud platform Altium 365 from 1 May 2020 to help engineers to work from anywhere and connect with anyone. It is pleasing to see that Altium 365 is gaining traction with over 2,500 companies and nearly 5,000 active users on the platform already”, said Mr Mirkazemi.
“We also launched online selling in May to expand reach, and to grow sales capacity to support our climb to 100,000 subscribers by 2025. While early days, our digital sales are gaining traction and in time will allow our transactional sales to fully focus on value-based selling and higher value deals”, commented Mr Mirkazemi.
“At our full year results, we will share more color on the long-term impact of COVID-19 on the acceleration of our strategy of market dominance and industry transformation. We will also share color about our recurring revenue and pricing model post COVID-19 and based on the impact of Altium 365”, said Mr Mirkazemi.
Comments from Altium’s CFO Mr Joe Bedewi:
Altium CFO, Mr Joe Bedewi commented: “Altium’s achievement of 10% revenue growth during COVID-19 is an impressive result. Moreover, Altium achieved strong growth in new Altium Designer seats sold of over 9,100 (up 14%) and delivered 17% growth in the subscription base to well over 50,000. This result places Altium in a strong position to drive further adoption of its new cloud platform Altium 365”.
“Altium also delivered over 3,000 upgrades of Altium Designer, up 47%, demonstrating the attractiveness of Altium 365 to existing customers. Altium 365 is moving our subscription business from being maintenance driven to capability driven”, commented Mr Bedewi.
Altium will release its fiscal 2020 results on Monday 17 August 2020 with an investor call to be hosted by Altium’s CEO and CFO at 9.30am that same day.
Participants can pre-register for the investor call using the following link to receive dial in details:
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[click on link above for the full announcement]
[I hold ALU shares]
22-June-2020: Altium Announces Business and Market Update
Altium Drives Strong Seat and Revenue Growth But is Likely to be Below Analyst Consensus in COVID Environment
Sydney, Australia - 22 June 2020 - Electronic design software company Altium Limited (ASX:ALU) advises that while its attractive pricing and extended payment terms to support its customers during COVID-19 are driving strong seat growth, its increase in revenue for the full year, while likely to be solid, will be below latest analyst consensus. New lock-downs in Beijing, China and an increase in COVID-19 cases in parts of the US are having some impact on Altium’s final sprint to the close of fiscal 2020.
Business and Market Update
Historically, Altium closes a significant amount of its second half business in the last two weeks of June. This June, Altium’s run-rate has begun to fall behind current analyst consensus and additionally we will be impacted by the recent lock-down in Beijing and increased COVID-19 infection rates in the US. Altium has temporarily closed its Beijing office, while staff continue to close sales from their remote working environments.
Globally, Altium is aggressively closing sales, with larger deals still in the pipeline, and seat growth is up 7% on the same period last year. However, the pricing strategy adopted in response to COVID-19 for Altium Designer is impacting revenue potential for the full year.
Altium CEO, Aram Mirkazemi noted that in response to COVID-19, “our strategy to support our customers and to increase volume under COVID-19 conditions through attractive pricing and extended payment terms is driving strong seat growth and will get us close to or just surpass our key target of 50,000 subscribers. However, we are feeling the revenue impact of this strategy. While we are likely to deliver solid revenue growth this will land marginally behind latest analyst consensus for the full year”.
Mr Mirkazemi further commented, “we see Altium’s approach to COVID-19 pricing and extended payment terms as the right thing to do to support our customers in this challenging environment and to not lose momentum as we enter the next phase of growth. As the world restarts we will assume new pricing effective 1 July 2020 as published on our website. We will return to full Altium Designer pricing with no extended payment terms from 1 September 2020”.
Altium will provide a final market update of its headline sales and revenue results for fiscal 2020 in early July.
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It will be interesting to see how the market responds to this update today.
06-May-2020: DDD20 Day 1
That presso, which is Day 1 of Digital Design Days 2020 (DDD20, held last week) is not specifically about Altium, but Altium is one of the companies that enable people to design the chips to make all of this tech work. The intro is pretty amazing and some of the companies presenting on Day 1 include PayPal, Dotlung.com (Mother of Social Media Dragons), LinkedIn, Airbnb & Amazon's Alexa, as well as the founder of DDD and a few journos.
Magellan (MFG) is one of the companies that invests in these sorts of companies, like eBay - who owns PayPal, Alphabet - who owns Google, Microsoft Corporation - who own LinkedIn, Tencent - who own WeChat and WeChat Pay, Alibaba - who own AliPay and many other businesses, and Facebook - who own WhatsApp and Instagram.
For a LIT that gives you exposure to all of those, Magellan's MGG is one option. You buy/sell units in MGG on the ASX just as you would buy shares in any company, and you have exposure to all of those global IT giants (but not Amazon, because Hamish Douglass regards Amazon as too expensive to buy).
In the USA, IT (information technology) as a sector represents 25.7% of their entire market (NASDAQ + NYSE) whereas it represents just 3.7% of our Australian market. IT is the largest sector in the US, followed by Health Care (at 15.4%) and then Communication Services (10.8%). Our top 3 are Financials (24.4%, thanks mostly to our big 5 banks), Materials (/Mining, 19.1%, thanks mostly to BHP & RIO) and Health Care (12.5%, thanks mostly to CSL, RHC, SHL & COH). We have our WAAAX stocks, but we don't have the stocks with the global footprints of the FAANGs and the two fast-growing Chinese giants (Alibaba & Tencent).
I currently hold shares in PAI, WQG, MGG & MHH for that global IT exposure.
Altium Announces Financial Results for the Full Year to 30 June 2020
Altium Exceeds 50,000 Subscribers, Delivers Solid Revenue Growth and Successfully Launches Altium 365
Sydney, Australia - 17 August 2020 - Electronic design software company Altium Limited (ASX:ALU) has announced its results for the full year ended 30 June 2020. Altium achieved revenue growth of 10% to US$189 million with solid performances in all core business units and key regions. Profit before tax grew by 12% to US$65 million. The company delivered an EBITDA margin of 40.0% for the full year. Other highlights include:
--- click on links above for more ---
Altium Confirms its Strong Operational and Market Position Within COVID-19 Environment
But Prudently Withdraws FY20 Earnings Guidance
Electronic design software company Altium Limited (ASX:ALU) confirms its strong operational and market position in the new COVID-19 environment. However, given the evolving nature of COVID-19 and uncertainty regarding its direction, it prudently withdraws its FY20 earnings guidance.
Operational and COVID-19 Update
Despite the uncertainty surrounding COVID-19, Altium is operationally and commercially well positioned, with electronic design anticipated to be relatively resilient to weather the prevailing and unfolding market conditions. This is, however, dependent on how long and in what future form COVID-19 takes and the rapidly evolving broader business, industry, economic and social impacts that may arise.
Altium’s CEO Mr Aram Mirkazemi commented, “as a high-tech company, Altium’s global workforce is geared to work digitally and for the past two months we have greatly increased our focus on driving productivity in this new operating environment. We are fortunate that our operating model is robust and highly adaptable to the new global conditions, as our marketing and direct selling are conducted through the Internet and via telephone. Moreover, we are well diversified across industry segments and regions worldwide”.
Mr Mirkazemi further stated, “at an industry level, electronic design is holding up relatively well in the new environment as engineers use excess time and capacity from the slowdown in manufacturing and supply chain to revert back to prototype designs”.
“We are accelerating the rollout of our new cloud platform Altium 365, as worldwide demand is growing rapidly for cloud-based collaborative tools across all sectors and all regions. Altium 365 is a core enabler of our strategy of industry transformation through market dominance and supports our drive to 100,000 subscribers by 2025. Altium 365 is particularly relevant to the circumstances that are unfolding under COVID-19, as it allows engineers to work from anywhere, and connect with anyone. We are also accelerating the rollout of our online/high volume selling approach, which will dramatically extend our inside sales capacity to support our drive through Q4 and beyond”, said Mr Mirkazemi.
Withdrawing Full Year Earnings Guidance
Altium’s CFO Mr Joe Bedewi commented “in light of the rapidly evolving COVID-19 environment, whose duration remains uncertain, Altium feels it is prudent to withdraw its formal FY20 earnings guidance. Altium management nevertheless remains firmly committed to its longestablished aspirational market leadership target of US$200 million for FY20”.
Mr Bedewi further noted, “as a global software company, we are operationally geared to work well in a digital environment, our business model is highly adaptable to the new conditions and the electronic design industry is relatively robust. Altium is continuing to close sales and our pipeline is looking solid at this point”.
“Moreover, Altium is financially very strong with real earnings and profitability and a strong balance sheet. Altium’s cash reserves have continued to grow and are expected to remain strong”, concluded Mr Bedewi.
During this evolving period, Altium will provide further updates on the impact of COVID-19 on the company’s operations and business performance as appropriate.
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I'm feeling a greater probability of a sp drop following the report on the 17th August. S.P has been stagnant since the financial accouncement and a number of sell recommendations may mean only a Stella report will move the sp significantly higher. As long as no unforseen surprises are reported, I will be adding on any price drop.