Altium provided a trading update, reaffirming that it expects to deliver FY21 revenue and margins at the low end of previous guidance.

Specifically, US$190-195m in revenue and a margin of 37-39%.

That compares to US$189m in revenue in FY20, which had an EBITDA margin of 40%.

So for FY21 we can expect EBITDA to drop by around 8% or so.

Not what you want to see for a business on 18x sales.

However, you do need to account for the divestment of their Tasking segment and the fact the the first half was impacted by covid.

Altium did reiterate its 2025 revenue target for US$500m in revenue, which represents ~27% compound growth from the end fo FY21. That factors in additional growth from acquisitions. On an organic basis, the revenue target is around US$384m (at the midpoint), or about 19% compound growth.

(Growth is very much skewed to the back end of that; for example revenue growth in FY22 expected to be circa 10%)

They've always come close to their long term targets, and it's certainly possible they achieve that. The question is how much of that is priced into the current price.

Shares are currently trading at almost 8x the forecast revenue of 2025. Assuming a 20% net margin (it's a bit higher at present, but will likely come down), shares are trading on almost 35x FY25 net profit.

In other words, for shareholders to do well at the current market price, you need to see these (ambitious) targets being exceeded, and/or the market multiples to remain quite high in the future.

EG to get a 10% average annual return from here, and assuming Altium hit's its targets in 2025, you need shares to be trading at a PE of 50 at that point in time.

Not saying that's not possible, only that your returns seem quite dependant on Mr Market being happy to sustain high multiples (which may be harder in another 4 years if inflation and interest rates are higher by then).

I really like the business. But just doesnt seem to be much upside in the price -- even when you take ambitiopus growth targets at face value.

You can read the latest update here.

Altium has said it expects a 3% decline in first half revenue to US$89.6m due to extreme covid conditions in US, Europe and tough conditions in China.

That being said, the company is maintaining its full year guidance, saying it has seen positive signs in Q2.

Read the full announcemenet here for more detail, but if we dont see a materially stronger second half I'd expect a lot of downside. Shares are on a PE of 72 and very much priced for growth.

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.

May 2020

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

18/02/.2020

Hard to be too displeased with the latest set of numbers. As shareholders have come to expect, revenue grew strongly (up 19% on the half), margins improved, license numbers increased etc

The business is still debt free and has over $80m in cash. 

HOWEVER, Net profit did fall -- for the first time in a long time, dropping 2%. The reason for this was that Altium was previously applying a large deferred tax asset, which has now been fully used. As such, Altium paid US$8.7m in income tax for the first half, comparted with just US$2.3m in the previous corresponding half.

That being said, pre-tax profit was around 23% higher (see attached image)

The company did reiterate full year revenue guidance of between US$205-215m, with an EBITDA margin of between 39-41%. BUT, the coronavirus in China and an underperformance of Octoparts (revenue grew just 2% in the half), mean that they expect to come in at the lower end of this guidance. 

That suggests a full year NPAT of ~US$50m, which on a per share basis in AUDs is about 56c. So although shares have fallen today, the PE is still ~65x (at time of writing)

Management reaffirmed the longer term revenue target of US$500m by 2025, which is 2.5x the current level. So a premium is certainly warranted if you think this is achievable, especially if you give extra points for business quality (as I do). It's just a question of how big a premium you think it deserves.

I really like the business, but feel a lot is already priced in by the market.

Results presentation is here

Wow.

Revenue growth of 24% to US$78.1m. Well and truly on track to achieve (and beat) long held 2020 target of US$200m in revenue.

Even better, EBITDA margin was 36.7%, ahead of 35% target. 

Net profit up a massive 58%.

Name any of their key metrics -- they ALL moved in the right direction. Of particular note was China, which saw a 49% lift in revenue (there's a lot of potential remaining here too).

Of course, still debt free with US$58m in cash.

Company has provided an aspiration goal of US$500m in revenue by 2025 and believes the EBITDA margin could expand to 40%. That would represent top line growth of 20% per annum between FY18 and FY19.

On that goal, EBITDA would grow by ~24% per annum between FY18 and FY25

Valuation is the hard part here. Using trailing twelve months (TTM) figures and an US/AUD exchange rate of 72c:

P/S ~20, EV/EBITDA ~54, PE ~67

To put that in context, Alphabet (Google), which is also growing top line at ~20%, trades on a PE of ~26 and a PS of 5.6. Altium is a fantastic tech company, but then again so is Google, right?

I have zero concerns about the quality and strength of the business. My worry is that unless shares can mainatin very high multiples, shareholders could see pretty ordinary returns from here. ALU is a $4.3b company, and it's not easy to maintain high and sustainted levels of growth at this scale. 

I have consistently under-estimated what the market will pay for this company. So be warned... 

Investor presentation can be found here

AFR article here

Have a long held target of US$200m in revenue by 2020 (reiterated as recently as HY18), with a 35% or better EBITDA margin.