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#Financials
Last edited a month ago

Thought this was a strong 1H result with EPS up 8.7% and EPSA at $0.133 and net cash. FCF of $18.3M but looked like $19.7M (Normalizing for borrowings (net cash before acquisition). Say $20M or $40M annualised roughly.

Market obviously disappointed with the impact of powercloud on margins in the first year - short sighted assuming HSN continues their track record with integrating acquisitions and margins recover.

FY25 if we HSN gets to annualized $430M revenue and margins recover to 28% = EBITDA of $120M. Would be net cash then too i imagine again - against current market cap of ~$1B for a sticky company.

Still wish they'd stop with the partially franked dividend. Pay out the franking credits and keep the rest for acquisitions or buybacks.

Anyway happy to hold but guess have to wait 12 months before any significant rerate now. Any rate cut and imagine would look attractive. Imagine there'll be another acquisition soon enough. Always the possibility of a takeover offer too again at some point if it stays around here.

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#Acquisition
Last edited a month ago

The long waited for acquisition, not as large as I was expecting would be able to pay it off rather quickly. Not much on prior earnings and seems to be mostly customers in Germany -announcements.asx.com.au/asxpdf/20240213/pdf/060bb98h2rqkj6.pdf

Would also add there's comfort in that it's an existing vertical - will find out more tomorrow.

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#Bull Case
Added 3 months ago

My bull case for HSN is after the last few years of deleveraging they are due an acquisition which I believe will be a catalyst for a rerate. I'd be surprised if there is no acquisition this year, more likely in the next few months.

While we wait HSN should generate roughly $50M in free cash flow on about a $1 billion market cap equating to around a 5%+ FCF yield. For a defensive, sticky client business i think this is reasonable especially if we get rate cuts at some point in the next 24 months.

The share price has been consolidating also recently. I do wish they'd cut the unfranked dividend and use it for buybacks or to fund the acquisition

It's not the highest quality serial acquirer as highlighted in the attributes here on page 19 - req.no/wp-content/uploads/2023/12/REQ-Deep-Dive-Acquisition-driven-Compounders-December-2023.pdf - but still decent.


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#Block Trade
stale
Added 7 months ago

Per AFR:

Listed billing software business Hansen Technologies’ managing director and heir Andrew Hansen was out shopping a $37.8 million slice in the company after market close on Tuesday.

Hansen mandated stockbroker Henslow to sell 7 million shares held by the family at $5.40 apiece or a 1.3 per cent discount to the last traded price. Bids into block trade were due 6pm, with allocations expected to be done be 6:30pm.

Street Talk understands a couple of domestic and overseas fund managers lapped up the stock. Sources said the family had tried to sell on Monday evening via another broker but failed to get it away.

It comes five days after Hansen posted a 5.2 per cent increase in operating revenue to $311.8 million for the 2023 financial year and a marginal 2.1 per cent increase in after-tax profit to $42.8 million.

The company was founded by Ken Hansen in 1971 and has been led by his son Andrew Hansen, who recently shed the CEO title but retained the managing director role.

The younger Hansen owned 17.48 per cent of the company’s shares on issue via his entity Othonna Pty Ltd before Tuesday evening’s trade. A change in substantial shareholding notice should be on its way to the ASX.

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#FY23 Results
stale
Added 7 months ago

Discl: Held IRL

THE GOOD

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Revenue

  • 5.2% increase in operating revenue, 2.1% in NPAT, 1.0% increase in EPS - organic growth, highest ever operating revenue result vs FY2023 guidance was 3-5% increase in revenue
  • Services, Support & Maintenance revenue grew organically 7.3% YoY, well above historical average of the business
  • No customer makes up more than 7% of revenue - diverse across geography, currency, product, and industry
  • Continued generating significant cash-flows and the paying down of debt - effectively net debt zero outcome
  • Several new logos and renewals won during FY23, no material loss of customers in FY23


Cash Flow and Debt

  • $78.8m of operating cashflows in FY23, used to (1) retire $33.6m of debt (2) pay dividends of $18.4m (3) fund the capitalised portion of ongoing product development program of $21.1m.
  • At the end of FY23, total borrowing's is $54.3m, net debt is effectively zero
  • Strong balance sheet with headroom for future borrowing capacity when the right acquisition opportunity is secured
  • Final Dividend of 5.0c, partially franked to 1.5c


FY24 Outlook

  • Organic revenue growth rate in FY24 is 5-7%, higher than FY23 5.2% growth
  • EBITDA expected to remain above 30%, and above pre-pandemic historical run rate of 25-30%
  • FY24 capitalised R&D spend of 5-7% of revenue


Acquisition Pipeline

  • Macro-economic factors increasingly favourable for acquisitions
  • Having effectively zero debt, HSN has significant financial resources for acquisitions


NOT SO GOOD

  • Underlying EBITDA FY23 was $99.5m, Labour costs and staff churn has stabilised
  • EBITDA margin at 31.9% reflects careful cost control - 2HFY23 EBITDA margin was 33.5%, indicating HoH margin improvements
  • Licencing revenue bounces around from half-to-half - driven by revenue recognition standards, does not appear to be a concern


WATCH & RISKS

FY24 seems set up to be a year of acquisition as (1) opportunities increase with the current macro challenges globally and in EMEA where HSN has a big footprint (2) decks have been cleared from a debt perspective to build the war chest to fund acquisitions - need to watch that the acquisitions make sense - excellent track record in this respect, so risks are very low

SUMMARY

  • Good solid results, exceeding FY23 guidance, steady as she goes - as “defensive” as technology companies can go
  • FY24 guidance is bullish
  • Expecting M&A activity in FY24


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#HY2023 Results
stale
Added one year ago

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Positives

  • Stable, steady-as-she-goes result - boring really
  • No loss of customers, significant project go-lives, stable margin - signs of continued operational excellence amidst staff, wage and inflationary pressures and a highly sticky customer base
  • Guidance for FY2023 maintained - 2HFY23 should see a better result than 1HFY23 due to (1) license renewal revenue - a timing difference in 1HFY23 (2) benefits flowing through stabilisation of workforce churn (seen in higher costs, reducing EPS)
  • Continue to be robustly cash generating, enabling rapid payment of debt (net debt $28.7m, 0.32x leverage ratio, but no debt actually paid this half), war chest in in place to take advantage of M&A opportunities as businesses globally face increasing pressures to shed cost as interest rate rises and other business inflationary pressures kick in - IT is always a good candidate for cost shedding, HSN is well placed to pounce
  • HSN is well placed with operational excellence/improvement and cash generation continuing in one stream, which then directly feeds its ability to find and execute M&A opportunities
  • Recent history has suggested that patience in M&A opportunities will likely be well rewarded as financial screws tighten further globally in CY23 and CY24 - next 12-18M could be very interesting


Minuses

  • Growth is significantly more “steady-to-flat” and boring - out performance will occur in distinct steps, tagged to M&A activities
  • Flat pcp revenue


Things to Watch Out for for 2HFY23

  • No improvement in license revenue in 2HFY23 - this would be a cause for concern
  • Costs continue to rise rather than flatten
  • Progress on any M&A opportunities
  • Continued traction on deployment implementation


Other Observations

  • The lack of M&A in recent periods has probably allowed for a period of technical stability to enable digesting/integrating/embedding of the acquired technology into the broader solution suite and customer - a good thing
  • Recent announcements appear to be contract extensions or new deployments of the HSN Solution Suite


Red Flag Risks

  • Loss of customers - a big red flag given historical trend of retention
  • Hint of challenges in technology deployment


Portfolio Positioning

  • Current portfolio has too much cash from forced divestments of high growth/high gain companies in the portfolio due to being acquired
  • HSN provides (1) a better position to deploy that scarce cash while looking for new opportunities to invest in (2) a ballast to a tech and growth-skewed portfolio (3) a steady dividend stream
  • Is not the best place to deploy scarce capital as there are more exciting opportunities for growth, but it is prudent to inject a bit of strong stability and strong cash flow generation into the portfolio, with the potential for decent price upside
  • Added 0.5% today at $4.71 to the existing 0.62% position, bought at $4.47
  • Ultimate position size could be 2.5-3.0% over time.
  • Has not tested 52-week lows of $4.32 for some time and is nowhere near the 52-week highs of $6.10 - have funds availability to top up if the market tanks and 52 week lows are re-tested


Discl: Hold 1.1% IRL

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#History Acquisitions
stale
Added one year ago

·      May 2019 Sigma Systems A$166.2m - is a leading global provider of catalog-driven software products for telecommunications, media, and high-tech companies. Its software is designed to streamline complex product and service offerings and provide a faster path to creating, selling and delivering new digital products and services, combined and packaged with traditional core services. https://www.asx.com.au/asxpdf/20190501/pdf/444rsmyk6f5pdx.pdf

·      July 2017 Enoro A$96m - the Nordic market leading provider of Customer Information Systems (CIS) and Meter Data Management (MDM) systems for the energy sector. https://www.asx.com.au/asxpdf/20170703/pdf/43kcjqf8p59sr8.pdf

·      November 2016 HiAffinity – acquire DST Billing solutions limted, which owns the HiAffinity customer care and billing system (“HiAffinity”). HiAffinity is focused on the water billing industry with clients in the UK, Australia, Africa and Americas. https://www.asx.com.au/asxpdf/20161101/pdf/43ckkj71f0w0z2.pdf

·      July 2016 PPL Solutions – provides billing, business processing outsourcing (“BPO”), call centre and information technology services to competitive electric and gass suppliers and regulated utilities in the US. https://www.asx.com.au/asxpdf/20160701/pdf/4388vgwgq7w41p.pdf

·      May 2015 TeleBilling – a company based in Demark. TeleBilling is a customer care and billing solution provider. https://www.asx.com.au/asxpdf/20150512/pdf/42yjbccmgwjg23.pdf

·      May 2014 Customer Suite (CIS) the utilities billing and customer care business of Ventyx. https://www.asx.com.au/asxpdf/20140516/pdf/42pnknyzklmqsc.pdf

·      March 2013 Utilisoft Australia - proprietary electricity and gas market access technology includes software solutions for real-time energy market interaction and transaction data management for generators, traders, retailers and other participants in the Australian energy market. https://www.asx.com.au/asxpdf/20130304/pdf/42dfl1r925tlwh.pdf

·      Jan 2013 buys Irdeto Inc’s Customer Central Pay TV billing and customer care product division. https://www.asx.com.au/asxpdf/20130102/pdf/42c7mm8l2svxq9.pdf

·      Nov 2010 NirvanaSoft provider of proprietary software for complex billing solutions to electricity and Gas utilities in north America https://www.asx.com.au/asxpdf/20101103/pdf/31tn4bg5fr9ld2.pdf

Note: Previous Acquisition to 2010 have not be in included

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#FY22 Results
stale
Added 2 years ago

@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).

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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.

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#Trading update
stale
Added 2 years ago

Hi Andrew @Strawman

Any thoughts on the HSN update and market reaction yesterday? I think it was one you used to follow if I recall correctly.

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#Contract win
stale
Added 2 years ago

Nice win for Hansen

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$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.

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Valuation of $6.00
stale
Edited 2 years ago

Moving average down price range:

Buy at $5.5

Sell at $6.5

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Valuation of $5.60
stale
Added 3 years ago
A well overdue update. FY21 EPS came in at 39.5c on an underlying basis (excluding amortisation which is a significant, albeit non-cash, expense). A good chunk of the amortisation is reasonable to ignore, such as that associated with acquired customer lists. That's because customers tend to be more sticky than amortisation rates suggest, and these costs aren't really matched by customer acquisition cash expenses. One-off acquisitions costs are also reasonable to ignore if you are after a clearer idea of the post-merged business. Although for a company like Hansen that does regular acquisitions, perhaps it should be considered a more regular cost of doing business. With statutory EPS around 25% below the underlying, pre-amortisation amount, it's important to get a good sense of what Buffett calls "owner earnings" -- the true earnings of the business when all necessary capex costs are included. This is an exercise that requires a good deal of discretion, but I will go with a 'true' cash profit per share of 35c for FY21 (FCF/share for FY20 was 38cps) That puts shares on a PE of < 16 (current price of $5.43) now that BGH has withdrawn its takeover bid. I'm also going to assume they can continue to grow successfully by acquisition, plus 3% or so per year organically. The company is targeting $500m in revenue by FY25, compared with $308m in FY21 (would have been $325 in constant currency). That's about 13%pa top line growth. The company has historically generated a ~20% underlying net margin (22% in FY21), but for the sake of conservatism i will assume 18% in FY25. While i'm at it, let's also assume they miss their revenue target and get only $450m in FY25 revenue. That's a FY25 NPAT of $81m, or ~41cps. Let's give that a PE of 20 in FY25 (about the long term average for Hansen, and not too high given the assumed growth and quality of cash flows) to get a target price of $8.20. That's $5.60 when discounted back by 10%pa That price also represents a yield of 1.7%, with a small franking credit kicker. It's easy to get a lot more bullish than what I have been. But it's encouraging to still be able to make a case for value with reasonably low ball assumptions. (Of course, if growth stalls, this valuation will prove worthless..)
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#BGH withdraws
stale
Added 3 years ago

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.

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#FY20 Results
stale
Added 4 years ago

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

 

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#FY19 Results
stale
Last edited 4 years ago

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

 

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#Sigma Acquisition
stale
Last edited 4 years ago

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.

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#HY2019 Results
stale
Last edited 4 years ago

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%.

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#Overview
stale
Last edited 4 years ago

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.

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