Offers Asset Management Services. What does that mean?

Clients in the natural resources sector contributed approximately 50% of revenue for the year, with the remaining clientele operating across utilities, government, defence, and public infrastructure sectors. From a geographical standpoint, 84% of the entity’s revenue for the year originated from our Australian operations, while the US operations contributed the remaining 16%.

Ended 30 June 2023, 38% of the entity’s revenue was derived from advisory and professional services, 27% from products and product-led services, and 35% from managed services.

I equate this to mean that 27% comes from software the rest from people. Hence the 10% net profit margin. Compare that with Technology One (a pure software company) which has an NPM pf 23%.

Acquisitions are a key plank of their strategy. Perhaps you could so far as to call them a roll-up. The CEO has 25% of his STI based on delivery of acquisitions. Another 25% goes toward outcomes from the Hitachi contract.

Having said that, in November, they provided guidance of 40-45% revenue growth for 1H24 compared to PCP. EBITDA margin of 13.5-14% which is same as 1H23 but down from full year 23 of 15.5%. Organic growth is mid-teens. That is very strong growth.

BUT. 1H23 NPAT was $3.2M. Full year was $8M. ie 2H23 NPAT was $4.8M. Their guidance for 1H24 is $3.2M + 45% = $4.6M which is no growth from 2H23 NPAT. They could also report nice growth numbers for FY24 when in fact they had none for 18 months. ie FY24 they could report $9.2M and say it is 15% above FY23.

So this begs the question as to whether growth has stalled or not.

Management

Chair is Geoff Lewis who was founder of ASG Group (ASZ) that was bought by Nomura Research (NRI - A japense company) ASG was an IT managed services company (servers, desktops, SOE's, etc). It was an WA company so it makes sense that COSOL has 50% mining companies. It has plenty of other high profile companies too.

Geoff has 15% of shares. Another director also has 15%.

Overall view.

It's a profitable company on a modest P/E of 18 promising near term growth of 40% but it's questionable whether that is real or a play with numbers. From a long term perspective. I think it is closer to a roll-up and it will run out of steam. I have no idea when that will be (perhaps already?). I don't know how fragmented the market is. Roll-ups can be attractive investments. Just look at TPG and iinet. Acquisitions are notorious though for providing sugar hits along with a sugar crash.

Not held.

Cosol (COS) today made a reasonably good announcement.

Cosol is a SAAS company specialising in Asset Management Software.

• Major clients of this company include the likes of Rio Tinto, Glencore & Aurizon
• Revenue has grown from 12mil in FY2020 to 75mil in FY2023
• NPAT has grown from 1.5mil in FY2020 to 8mil in FY2023
• Todays Market Cap is 146mil and as such has a trailing PE of 18.5

Assuming the half yearly guidance can be annualised and reaches the bottom line this company could have an FY24 NPAT 11.1mil and a forward PE of 13.2. I won’t speculate on the probability of that occurring, however in a world where most asx listed SAAS companies carry a PE in the range of 30-60 this company looks like it has value.

I am however finding it difficult to zero in on the TAM, and how sticky if at all this companies software actually is. I’d love to get peoples thoughts.

There is lots to read in the acquisition of AssetOn

Probably only positive is the potential cross selling opps. Also some ARR earned from the assetOn OnPlan offering although it is small.

Negatives I see are:

* Ebitda margins being reduced after acquisition (was already falling in latest update)

* Not much detail on what MDaaS (Master data as a service) actually is. But it looks like a semi automated processing of asset data to more useable format

* Discounted 15m placement of 76.5c (but was oversubscribed)

* Earnouts seem generous

Out for now even though I see Bell potter increasing their target price.

Another new contract. I think Cosol is a solid business and it’s on my watchlist. I’d like to pick it up a bit cheaper, but I will probably miss out. Good metrics in a good sector: Forecast ROE 21%, 50% reinvested income, PE 20, PB 3.1, PEG 0.9, EPS growth 22%, net debt on equity 22%. Have it returning c.11% returns at the current price and performance.

ASX Announcement

COSOL signs $17m contract to deliver asset management services to global leader in Copper and Gold mining

Brisbane, 11th July 2023 - COSOL Limited (ASX:COS) is pleased to announce it has signed a major contract to deliver Asset Management Services to OK Tedi Mining Limited, owner of one of the world’s biggest copper-and gold mines, based in Papua New Guinea.

The contract has a value of $17 million and will run for three years.

This contract extends and deepens the existing relationship, which has spanned almost two decades, delivering operational efficiencies and cost savings.

Under the contract, COSOL will deliver comprehensive, end-to-end Asset Management Services, leveraging the combination of COSOL’s proprietary software and services.

COSOL will generate major operational efficiencies, material cost savings, and assist the company in its drive to achieve zero waste in its operations and supply chains.

CEO Scott McGowan said “COSOL is delighted to solidify the long-term relationship and it is pleasing that we have again been entrusted by a leading asset intensive business to continue providing crucial asset management software and services to a global scale mining operation.”

Disc: Not held