Sometimes a company issues a profit warning, and alarm bells ring. Perhaps competition is eroding margins, there are issues with a new acquisition, or serious structural headwinds. The intrinsic value of the company is in free fall. Suddenly the future is so uncertain. And in these times, as an investor you are left wondering: if there is one cockroach, maybe there are more to be found in this kitchen. Get out!
Other times, its just a one-off. Maybe earnings are lumpy and don't fit nicely within the financial year. Maybe one-off costs or accountancy changes. Sometimes, it just happened to be a below average year (less deaths - Invocare anyone?). Maybe the company just isnt great at providing guidance.Webjet (last year), Link administration, Technology one, and Nanosonics all come to mind.
This is where it pays to buy a high quality and reliable business. There are durable competitive advantages. The company sticks to its knitting. Management is honest and has skin in the game. The 5 to 10 year share chart is a badge of pride. This company is an undeniable wealth winner for the buy and hold investor.
From the Hansen technologies recent update there will be slight earnings miss for 2018, and it looks to be slowed growth in 2019. The reasons:
- A license agreement took longer than expected, and will be recognised a year later
- Some one-off restructuring costs for a newly acquired business
- An underperforming call centre deal has led to termination in the contract
- 2018 was such a great year, maybe 2019 just wont look as great
Hey presto, the share price is down 28%!
Hansen Technologies is software-based company which provides billing solutions for more than 600 clients in over 80 countries around the world. Clients include electricity utilities, telco, superannuation trustees and pay-tv companies. Most of revenues come from critical billing functions. This is a great business because:
- Recurring revenue stream. Great customer retention with significant switching costs
- Scalable business with fragmented competition
- Geographic exposure
- Family founded and led business. Honest management with a long record of making intelligent acquisitions
- Low capital requirements. High and stable return on equity. No significant debt.
Summary: It looks good value to me, will gladly read analyst reports and sit back. Could add to position. I haven't seen anything to doubt the long-term outlook. The only question is the price.
