Healthcare tech provider and Strawman Community favourite $AHC posted their 1H FY26 yesterday. I've been watching this one ever since it was put on my radarscreen by several of the most illustrious StrawPeople, and have in recent weeks opened an initial position following its fall below my "buy" price of $0.35. (RL 4%, although I'm yet to add on SM).
As this is my first coverage of $AHC, my reason for lurking for so long is that I wanted to get a better feeling for how it's M&A strategy is playing out, as I tend to be reluctant when firm's use M&A because i) it muddies the waters of the historical numbers, so I can't see the underlying "economic engine" and ii) well, because I don't like M&A unless I get confident that management know what they are doing. Other than that $AHC is in my sweetspot, combining healthcare and tech, and so I've taken an initial bite.
@MangroveJack has already given the headlines, however, because the impressive headline result includes organic and inorganic contributions, I've decided to have a go at pulling things apart in some future detail.
In a break from my usual structure, I drop 3 charts - to give a sense of half-on-half variations and overall trends. Then I'll record my analysis.
My valuation will follow in a few days, however, from my work so far, its looking broadly in line with @Hogajo ($0.45) and @Wini ($0.50) at my p50%, although my range is a bit wider.
As I said, while I have been following this one for a few years, this is my first write up, so I'm very keen for any feedback from those StrawPeople who have a better understanding of this microcap.
Summary
Austco Healthcare delivered a record performance in 1H FY26, combining acquisitions and organic growth to drive revenue up 30.7% to $48.2 million and net profit after tax up 61.7% to $4.7 million.
The company look like it might be demonstrating some operating leverage, expanding EBITDA margins to 17.1% while holding %GM within the range of the last few years.
The result gives an initial positive indication of its strategy to vertically integrate ANZ reseller businesses without diluting profitability.
With a debt-free balance sheet holding $15.2 million in cash and a substantial order backlog of $47.2 million, Austco has solidified its financial position while maintaining strong visibility on future earnings.
As fas as I can discern, acquisitions are currently the primary engine of this growth, and it will be important to see what the organic "engine" looks like from here over the coming periods.
Today's result seems to reduce my view of the risk that low-margin installation revenue would dilute Group quality; instead, Austco seems to be capture more of the value chain margin.
With the UCR flattening, future growth will likely require either new M&A targets in other regions (North America/Europe) or a re-acceleration of pure organic software sales to drive the next leg of expansion. Personally, I hope we get to see some of the latter first, although, the results are encouraging, indicating that management are adept at identifying the right acquisitions, keeping them appropriately sized and then executing well.
My Detailed Assessment
1. Revenue Growth: Inorganic Drivers dominate
Revenue rose 30.7% to $48.2 million.
This follows a 40% jump in FY25 full-year revenue. The growth trajectory remains steep, but the composition has shifted.
Organic vs. Inorganic: While the company cites "continued organic growth," particularly in North America, the primary driver appears to be the full-period contribution of recent acquisitions (Teknocorp, Amentco, and G&S Technologies).
- ANZ Revenue: Surged 57% to $26.9 million. This disproportionate growth in a mature market confirms the impact of rolling up resellers (G&S, Teknocorp).
- North America: Grew 38% to $15.4 million, which is likely the strongest source of pure organic growth, given fewer recent acquisitions in that specific region compared to ANZ. (I see this as a big positive)
- Asia: Revenue declined to $3.9 million, highlighting project lumpiness in organic markets without M&A support.
2. Margins and Operating Leverage: The Key Success Story
The most critical positive in this result is the expansion of margins despite the integration of typically lower-margin reseller businesses.
- Gross Margin: Improved to 52.2% (up from 51.1% in 1H25). This defies the historical expectation that acquiring hardware resellers (who earn lower margins than the OEM) would dilute Group margins. It suggests Austco is successfully capturing the full vertical margin (manufacturing + reseller markup) or realizing manufacturing efficiencies.
- EBITDA Margin: Expanded significantly to 17.1% (up 310bps from 14.0% in 1H25).
- Leverage: Overhead expenses grew 23.6%, lagging well behind the 30.7% revenue growth. This confirms that the fixed cost base (R&D, corporate) is being efficiently spread over a larger revenue base, a classic indicator of successful scaling.
3. Earnings Quality and Cash Flow
- NPAT: Up 61.7% to $4.7 million. The effective tax rate has normalized to ~24.5%, making this a "clean" profit number compared to FY24 which was boosted by one-off tax assets.
- Cash Flow: Operating cash flow of $9.2million was strong, effectively matching EBITDA ($8.3m). This indicates high earnings quality; profits are converting to cash rather than getting stuck in working capital (receivables/inventory).
- Capital Allocation: The company remains debt-free with $15.2 million in cash. However, organic investment is relatively modest (Capex $0.5m), with the bulk of free cashflow ($6.0m) directed toward acquisition payments (earn-outs).
4. Forward Visibility
Unfilled Contracted Revenue (UCR): Stood at $47.2million. While substantial, this has essentially plateaued since August 2024 ($50.3 million) and June 2025 ($53.8 million). A flat or slightly declining UCR in a high-growth environment suggests that while the company is executing delivery (converting order book to revenue) efficiently, the rate of new organic wins may be stabilizing rather than accelerating. The order book is being consumed as fast as it is being replenished. This is something that will be important to monitor over the next coupld of 6-month periods.
Overall, a nice result. And although the market agreed with the SP up 18+% today, this movement has to be considered in the context of the pullback over the last 3-4 months.
Disc: Held (RL 4%)
Austco released a trading update today to coincide with their AGM later this morning. Overall impression is it was what you would want to see, which is to say, solid. They didn't break down the organic/inorganic split, which would have been nice, but did reconfirm targeted 10-14% organic growth for FY26. Highlights included:
• Revenue of $23.2 million, up 51% on the pcp, which includes both organic and inorganic growth.
• EBITDA of $4.2 million, representing 18.1% EBITDA margin, up from 16.0% at FY25 year-end.
• Order book of $54.6 million at 23 October 2025.
Here's how the order book has tracked over the past six years:
Overall it continues to deliver at or above what I need it to in order to justify continuing to hold. I've been lightening some positions that have gotten a bit frothy in recent months but Austco is not one of them.
[Held]
Great trading update by Austco, continues to perform
Good to see some actual Performance Rights with Hurdles. Not common in the shares I hold down in this part of the market cap world.
Sure, it's a growth-by-acquisition story, but at least they are acquiring into an industry with structural growth tailwinds.
Net Profit After Tax lower: $5,933Mill (16.2%)
Net Debt/ Equity is ok so has liquidity here .. We looking for the these acquisitions to be integrated, sustainable.
https://hotcopper.com.au/threads/ann-appendix-4e-fy25-financial-statements.8731195/
Unfilled Contracted Revenue Recent large contract wins in North America and growth in most other regions across the group have contributed to the continued growth of Austco’s Unfilled Contracted Revenue (UCR). Our UCR book now stands at $53.8 million at 13 August 2025. This includes a net $6.3 million from the recently acquired G&S, being their UCR less orders they had open with Austco NZ.
Cash and Working Capital Position Cash on hand was $14.5m at 30 June 2025, up from $13.6 million at June 2024. Cash generated from operating activities of $13.48 million reflected underlying profitability and allowed for the investment into further businesses (G&S acquired in May 2025) without the need for debt or raising capital. Despite working capital increasing as a result of acquiring G&S, the Group is well placed to fund future contingent consideration obligations without the need for liquidity events, if it chooses to do so.
AHC closed lower while the XJO 8,395 -0.40% also lower
Return (inc div) 1yr: 71.43% 3yr: 50.53% pa 5yr: 38.36% pa
Austco today announcing the acquisition of NZ-based call system solutions provider and Austco reseller, G&S Technologies. I don't know about others but I find it very difficult to play armchair quarterback on acquisitions. There are just too many factors, like working capital pegs and balance sheet health, that are completely unknown unless you're in the tent. However, what we can say based on what's available to us:
- 3.5 times EBITDA - tick. It's in line with other acquisitions they've done, which have so far proven successful. They're maintaining price discipline.
- The EBITDA conversion % is roughly in line with the existing Austco business - tick. On that measure at least seems to be of reasonable quality.
- Strengthens direct sales capacity - tick. They've been doing this across multiple regions and it's been working so far.
- Up to 75% funded by scrip, at Austco's discretion - tick. Give them skin in the game and preserve cash. Yes, it's somewhat dilutive but there's always going to be a trade off.
- It's a meaningful addition - tick. It roughly represents half of Austco's business from 12 months ago. They've grown considerably since so probably represents about a quarter of FY25 business but still significant.
Only slight quibble is that they didn't take the opportunity to update on the order book but I'm nit picking.
[Held]
@LifeCapital and @BendigoInvesto covered this, so I won't back over what they've written. Except to say that I was scratching my head at this result. The numbers just looked too good, and I couldn't get them anywhere near to adding up until I re-read almost to the bottom of their trading update:
Talk about burying the lead - a 5.6% increase in GM is huge! Much higher than anything they've done for at least 10 years. What is that? Is that Technocorp? I'd thought of Technocorp as strategically important, but of lower quality than the existing business. That isn't borne out by the numbers though:
So Teknocorp appears to be holding its own and then some. But the underlying business appears to have had a standout quarter as well. While I thought the 1H numbers were fair-to-good, I had expected a lot more given the growth in order book and commentary around impacts of COVID impacts easing. Q3 appears to have made up for that.
It's just as dangerous to extrapolate a good quarter as it is a bad one, but I'll do it anyway cause I'm a slow learner. Although they disclose NPAT, I'll focus on EBITDA because their tax is all over the shop. They are run-rating at almost $10 million EBITDA, which is an EV/EBITDA ratio under 6. Add a record order book and I'm a happy holder.
Austco has come out with a roadshow presentation today, with lots of funky graphs and "buy me" arguments. Not a lot new, although they did disclose sales orders were up again from last month's record high to $37.2m - so they're filling the funnel faster than they can drain it. (Ignore the 'Revenue from customers' tag - revenue it ain't).
Austco is one of my more comfortable holdings. They disclose often enough to make you feel wanted, without getting all over-promotional. When they make investments in product or people they set realistic expectations about how long it will take to get a payback from the investment. They certainly appear to be in that zone of getting a return of previous investment right now though.
If I were being hyper-critical I'd say the CEO is very well compensated for a company of this size. However, Clayton appears to be getting the job done so I'll not quibble while that remains the case. It's arguably not a screaming bargain but if they keep growing at the rate they are it will look cheap soon enough. Happy to hold.