@ArrowTrades -- yeah I used to hold, but sold down earlier in the year purely because I thought there were better risk/reward opportunities. I still think it's a solid company, but growth options are largely predicated on acquisitions, with minimal organic growth potential (something management acknowledged at the latest results), and I'm not sure shares represent great value (not that they are expensive, just not as cheap as I'd like for me to switch out capital from other places).

There's nothing wrong with this picture. The business has very reliable cash flows and has been diligently reducing leverage while continuing to pay dividends.

But while 5.4% average profit growth is perfectly decent, it's not spectacular. And a PE of 18 or a yield of 2.4% isnt enough to tempt me back right now.

That being said, it's a very low risk company, and a good 'under the mattress' holding for dividend focused investors.

Nice win for Hansen

$9m/year for software shows just how big an implementation it is, and just how critical it is for their clients.

I sold out of Hansen a while back, partly on some concerns that organic growth would be low and (mainly) because I wanted the capital for what i thought were better risk/reward opportunities. In hindsight, that was probably a mistake (not least because they received a -- eventually failed -- takeover offer not long after!)

The company is probably on a forward PE of something like 18 or so (remembering that their EPS has a lot of underlying, one-off considerations such as acquisition and non-cash amortisation expenses). Still, for context, annualising the free cash flow per share from the first half would give an 'earnings' of 35cps for FY22.

It remains on my watchlist.

Perhaps a good reminder that a bird in the hand is worth two in the bush -- especially when it comes to unsolicited, conditional, non-binding, indicative takeover proposals from private equity companies.

Shareholders (like myself) had the chance to sell out at ~$6.20 on market for months, but didnt because of the extra 5% they'd get if the deal went through (or perhaps hopes for a higher bid from somewhere else, although there was no hint of another interested party). Of course, if it didnt, there was a pretty decent downside potential.

A unanimous endorsement by the board and a co-operation agreement with Managing Director Andrew Hansen made it seem (to me at least) more certain than it clearly was, but this was clearly a mistake.

Not that it makes a huge difference, the business is doing well (FY21 saw a record profit and the business reckons it's on target to get to $500m in revenue in FY25 -- up from $300m today). So i'm still happy to hold my (relatively small) position.

If you ignore the entire takeover affair, shares are still well up in the last few years and I think shares are trading at reasonable prices. (assuming HSN hits it's targets)

It's just that I regret missing the opportunity to sell out at a bit of premium, and i think the Hansen team were too eager with BGH's approach and have doubtless wasted a lot of time and money with what was ultimately a big distraction.

Hansen has proven to be very reslient in the face of covid, as you would hope given the core role it plays for utility customers.

Revenue rose 30%, while EBITDA and NPATA were up 34% and 41% respectively. On a per share basis, earnings were 40% higher at 23.9c (on a NPATA basis, which excludes non-cash amortisation of acquired customer lists).

Hansen paid out 10c in dividends (including a 2c special dividend) in FY20. That represents a 46% payout ratio and puts it on a trailing 2.5% yield (exc. Special div).

The company also managed to pay down a chunk of debt, reducing the total by 23%. (Sigma was entirely debt funded)

Free cash flow was really strong at $44m, only just behind the reported NPATA of $47.4m, and almost 50% above FY19.

This big jump in profits was due to the acquisition of Sigma last year -- the biggest purchase in the company's history (being debt funded, there was no material increase in the share count). Organic revenue growth was only 2.9%.

Overall, these results came in slightly better than I expected (see previous Straws), and have underscored the quality of the business and management.

This is a company that is all about growth by acquisitions -- something that should normally make you nervous. But Hansen have been doing this for 20 years, creating significnat wealth for shareholders over that time and reinforcing a strong competitive position.

They are good at what they do.

Although organic growth is usually around single digit levels, the revenue generated is very reliable and high margin (16% net margin). 

Over the past 5 years, per share earnings have compounded at an average annual rate of growth of 16% and i think low double digit growth is likely for the next 5 years.

Happy to continue holding this for many more years, with a view to accumulate more whenever the market worries over short term factors.

Results presentation is here

Hansen has provided a trading update.

It expects no material downturn for its customers that continue to provide essentail services.

for FY20, revenue is expected to be between $298-300 million, while EBITDA is expected to come in around $75-76 million.

This follows the withdrawal of guidance in early April. Back in February it was guiding for revenues of $300-305 million, with EBITDA of $72-77 million.

So it looks like the impact of COVID-19 has been relatively benign for Hansen.

You can read the announcement here 

Hansen saw a 28% lift in operating revenue to $144.4m for the first half of 2020, with underlying EBITDA up 20% to $34.1m (excluding AASB 16. If included, EBITDA would be $37.5m)

This was driven by a record number of new project wins in the half, but mainly because of the acquisition of Sigma in June last year. Excluding Sigma, revenue would have been 2.7% lower and EBITDA would have been 3.2% lower.

Due to a higher interest charge (they borrowed a lot to fund the Sigma acquisition) and higher depreciation, Net Profit (excluding amortisation of acquired intangibles) was only 3% higher, which translates to a 2% lift in EPS due to a highershare count.

For the second half, managment said that they expected "a strong uplift in revenue relative to the first half, along with a strengthening EBITDA margin".

That being said, Hansen has lowered guidance for full year revenues to between $300-305m (down about 1.6% at the midpoint). However EBITDA guidance is for $72-77m (ex-AASB 16), which is roughly 2% higher than previous guidance.

That indicates a full year gain to EBITDA of 33.5%. 

The company has so far repaid $14m in debt since the end of last financial year, which now sits at ~$177m. 

I estimate FY NPATA to be ~$38m, which gives an EPS of ~19c.

Results presentation here

FY19 was weaker as forecast by the company, and with the substantial acquisition of Sigma contributing only 1 month's worth of earnings.

Overall, sales were essentially flat, or down 1.9% excluding Sigma. Nevertheless, recurring revenues were up modestly.

Underlying NPATA was 12.8% lower (Hansen traditionally ignores the amortisation charges of acquired intangibles, such as customer lists, which I think is reasonable given it's retention)

The expense base was flat, and are expected to reduce in the coming years thanks to the investment in the vietnam development centre.

Looking ahead, management said they expect revenue to grow by ~33% and EBITDA to grow by ~32% due to a full year contribution from Sigma. Accounting for new shares, and all else being equal, that should transalte into FY20 EPS of roughly 22cps.

Full ASX results presentation is here

Hansen today announced the acquisition of Canadian catalog software provider Sigma.

ASX Investor presentation is here

The purchase will be paid for in cash, will cost $166.2m and is being funded by a new $225m credit facility from RBC Capital markets.

The cost represents an EV/EBITDA multiple of 8.3 -- which is far from cheap for a privately held company, and only slightly below what Hansen itself trades for (it's on a EV/EBITDA of 9.1, using the trailing 12 months of EBITDA).

It was also purchased of a Private Equity company -- Birch Hill -- which has owned the business since 2015. And that's often a poor sign (PE companies seldom make any long term capital investments into businesses they run, and simply look to dress up the metrics and then flick to a new buyer...)

The strategic rationale is that it significantly expands Hansens exposure to the Telco industry -- more than doubling the proportion of revenue it derives from this sector. Moreover, Hansen reckon it will give them significant cross sell opportunities into its Energy and PayTV customer relationships. Sigma's product sits adjascent or withing Hansen's core billing and Customer management offerings.

The acquisition is expected to be EPS accretive -- excluding the amortisation of acquired intangibles (such as customer lists).

Hansen is extremely well practiced at making acquisitions -- its done loads of them -- but this is definitely a material purchase. Based on the trailing 12 months of operating earnings, Sigma should boost Hansen's EBITDA by ~28% (all else being equal). 

So very positive from that standpoint. The risks, though, are that it will be difficult to integrate, will require a lot of investment, they dont achieve the cross sell benefits they expect, there could be writedowns to carrying value if the business underperforms.

The first half result was pretty ordinary in comparison to the previoius corresponding period, with Revenue down 5% and NPAT down 28%.

That being said, management had previously flagged a drop in the full year revenue and has still reiterated guidance.

Relative to the preceeding half (H2 2018) revenue was flat and profit up 18%. Thus the operating margin has improved half on half, from 22.7% to 25.3%.

Debt was further reduced, leaving the business with only $0.6m in net debt.

The market's reaction has been brutal, but I don't see any structural issues wth the business. Just a re-rate based on lower than expected growth, which isnt unreasonable. I'm also lowering my valuation.

As of Friday's close ($3.03), shares are on an PE of 17.8 and a yield of 2%.

Hansen is a software developer focused on billing solutions for utilities, energy and telco companies.

It has a long pedigree of delivering double digit sales and earnings growth, which has underpinned fantastic log term returns for sharehlolders. 

Acquisitions have driven much of their growth, although these have been mostly value accretive for shareholders and they have achieved this with minimal debt and share issues. 

Specifically, they have made 9 major acquisitions in the past decade, at a cost of $187m. That's funded by $76m in equity, $27m in debt and $84m in operating cash flow.

It's products are very sticky and scalable, with 65% of revenues recurring in nature.

It is led by Managing Director Andrew Hansen, the son of the founder, who has held the top job since 2000. He owns ~17% of all shares.

Hansen enjoys a lot of the attractive characteristics associated with software companies, and has a long track record of attractive shareholder returns.

FY19 saw a bit of a dip in profits -- which were well telegraphed -- but over the medium to longer term i expect upper single digit growth.

Given the nature of customers, and the tight integration of products, cash flows should be very reliable. Moreover, Hansen is little exposed to the domestic economy.

Management have a lot of shares and are welll aligned.

A great stock for the bottom drawer.