While looking at Gentrack to get a better idea of valuation, I thought it would be worth looking at Powercloud for a change.

On their website there is a high level overview of how everything is connected

But when I try to understand smart meters in powercloud, my question remains unanswered and they are unable to articulate their implementation.

Compare that to Gentrack which explains the smart meter strategy in more detail.

And for the techies out there, you can even call the Gentrack endpoint API

There is no documentation on endpoints in Powercloud website

Powercloud does have partners who build apps to enable customers to use the platform.

So I'm finding it harder to understand the advantages of Powercloud vs Gentrack.

I haven't compared Hansen's offering against Gentrack as I assume Hansen bought Powercloud to keep up with the changes in utility billing.

I'm hoping someone that has looked at Powercloud more closely can deep dive further. As it is hard for me to find a case to switch from Gentrack to Hansen despite the recent institution selling in Gentrack (WAM, Milford, Regal AEF have been selling)

SUMMARY

No surprises on Core Hansen business, German PowerCloud acquisition short-term financial drag was flagged and thus expected.

Pleased with progress on Hansenisation of powercloud in the short time since acquisition - it will be a good launch pad into the DACH region, once completely integrated into HSN.

powercloud expected to be Underlying EBITDA positive in Q4FY25, with Underlying EBITDA loss capped at (A$5m) and capitalised R&D capped at $A5m - expect this to be achievable given current progress and HSN’s strong record of integrating acquired businesses.

Thesis of steady, dependable growth very much intact. HSN provides my portfolio with a stable growth ballast and dividends.

Discl: Held IRL and in SM

Core Hansen, Excluding powercloud

Chugging along nicely (1) $334.7m revenue, 7.3% increase (2) Underlying EBITDA flat at $99.7m (3) Underlying EBITDA margin 26%

11 Tier 1 & 2 wins in FY24

No one customer contributes >8% revenue, customer church remains extremely low at ~1%

No surprises, both Energy & Utilities and Communications & Media verticals are travelling nicely

German powercloud Acquisition

The German powercloud acquisition has, as expected, dragged the FY24 results down (1) Revenue $18.4m (2) Underlying EBITDA ($7.4m) (3) Underlying NPAT ($10.4m) - this was previously flagged, so no surprises.

“Hansenisation” of powercloud have gone well, powercloud financials have been better than originally anticipated.

Re-signed EWE, a major powercloud customer, for another 5 years.

Initial restructuring completed with estimated annualised savings of ~$13m.

powercloud has offered a cheaper, faster more effective way to enter the German market vs the alternative option of building HSN’s billing software from scratch.

Balance Sheet

• $59.1m Operating Cash flow, down 25%
• Free Cash flow ($5.7m) to $46.7m
• $70.2m debt, net debt position $23.5m
• Already paid down $12.0m of initial borrowing of $55.3m to acquire powercloud
• No change to dividend payments - $51.1% of NPATA

M&A

Continue to be on the lookout for M&A opportunities with the usual HSN M&A diligence

FY25 Guidance

Back to “normal” HSN trajectory

Pleased to see some “precision” in powercloud financials - EBITDA positive Q4FY25, subsiding of Underlying EBITDA losses and capped to ~A$5m, capitalised R&D capped at ~A$5m

Hansen Signs 7 Year Renewal & Upgrade Contract with a Leading European Utility

• Hansen signs 7-year renewal contract with a leading European utility
• SSE, a long-term Hansen customer since 2005, is a leading supplier of electricity and gas to the United Kingdom and Republic of Ireland
• The agreement will facilitate an upgrade to Hansen’s cloud-enabled, event driven CIS platform
• The contract renewal and upgrade represents a significant enhancement to the existing contract and includes implementation commencing in FY25 and an additional incremental recurring revenue uplift of approximately A$2.8m per annum post implementation completion.

A nice win to end FY24 from the perspective of (1) a continuing long-time customer (2) a strong vote of confidence in HSN's Customer Information System (CIS) platform!

Discl: Held IRL & SM

Board Ownership

Inside Ownership                   Ordinary Shares      %HSN Issued       Net Value at $4.35

David Trude                            103,801                       0.05%               $436K

Andrew Hansen                      28,434,876                  13.98%                 $119.426m

Lisa Pendlebury                      13,869                         0.01%               $58K

Bruce Adams                           27,891,417                  13.71%                        $117.143m

David Osborne                        28,125,448                  13.83%                        $118.126m

Rebecca Wilson                      0                                  0                       0

David Howell                           43,805                         0.02%               $184K

Don Rankin                             25,000                         0.01%               $105K

Total                                        84,638,216                  41.61%             $355,480,507

Current Market Cap at $4.20 is $854.4m

Recent Selling

David Trude

·   7 May 2024 Sold 6000 shares at average price $4.75 per share ($28,500)

Board Bios

David Trude - Chairman

David Trude has extensive experience in a variety of financial services roles within the banking and securities industries. He holds a degree in commerce from the University of Queensland and is a member of many professional associations including the Stockbrokers and Financial Advisers Association of Australia and the Australian Institute of Company Directors. He is also Chairman of Baillieu Holst Limited, a Director of CHI-X Australia Limited and Director of ASX listed Acorn Capital Investment Fund and MSL Solutions Limited.

Andrew Hansen - Managing Director

Andrew is an IT executive with over 30 years of experience, including management of mid to large-size organisations, corporate development, business operations, and strategy. Until June 2023 Andrew held the role of Chief Executive Officer and Managing Director at Hansen Technologies Limited before transitioning the operational tasks of CEO to Graeme Taylor.

Andrew joined Hansen in 1990 and quickly began to transform the business and then ASX listed the company in 2000. Andrew’s IT expertise and strong business acumen have built a diversified global company delivering market-leading billing and customer care solutions in over 80 countries.

As Managing Director, Andrew now undertakes a more hands-on role in driving the strategic growth aspirations of Hansen, which includes identifying and integrating acquisition targets.

Lisa Pendlebury - Non-Executive Director

Lisa Pendlebury is a highly experienced executive who has worked in the pharmaceutical, consumer products and finance industry for more than 20 years. She started her career in investment banking at JP Morgan before moving to private equity with CVC Capital Partners. She held various roles in business development and strategy at Pacific Brands. For the last 12 years she has worked in the pharmaceutical industry at Mayne Pharma and has been an executive on the senior leadership team. Lisa has extensive experience in business development, mergers and acquisitions, corporate strategy, investor relations, financial reporting, corporate governance, remuneration and sustainability.

Lisa holds a Bachelor of Commerce and Bachelor of Science degree from the University of Melbourne. She has a CPA and holds a Graduate Diploma from the Securities Institute of Australia. She is Treasurer of EDFA, a not-for-profit organisation.

Bruce Adams - Non-Executive Director

Bruce Adams has over 25 years’ experience as a commercial lawyer. He has practised extensively in the areas of information technology law and mergers and acquisitions and has considerable experience advising listed public companies. In early 2002, after more than 10 years as a partner of two Melbourne law firms, Bruce took up a position as general counsel of Club Assist Corporation Pty Ltd, a worldwide motoring club service provider. Bruce holds degrees in Law and Economics from Monash University.

David Osborne - Non-Executive Director

David Osborne is a Fellow of the Institute of Chartered Accountants, and a Fellow of the Australian Institute of Company Directors, with over 50 years of financial management, taxation and accounting experience in public practice. David’s experience includes having been the Audit Partner of his accounting practice and a Registered Company Auditor for over 25 years. He also has experience in the various aspects of risk management. David has a long-standing association with Hansen, having been a Board member for some years prior to the Company’s listing on the ASX in June 2000.

Rebecca Wilson - Non-Executive Director

Rebecca Wilson is an experienced company director within private, ASX listed and not-for-profit organisations. Outside of Hansen, Rebecca is currently the Non-Executive Chair of healthcare technology company, Alcidion Limited (ASX ALC), and Ai-enabled medical instrumentation business LBT Innovations (ASX LBT), and Non-Executive Director of Private UK consumer e-commerce business Ateria Health Limited. She’s also a Non-Executive Director of the Tomisich Foundation, a NFP organisation.

In her executive career, Rebecca held global leadership roles in, marketing, communications, investor relations, capital management and corporate affairs. She has extensive experience in ESG, stakeholder engagement, issues and crisis management, M&A, and investor relations across multiple industries including technology, healthcare, retail, and professional services.

Rebecca holds a BA Arts and Grad Cert in Applied Finance & Investment. She is a Graduate of AICD with AICD course certificates in Climate Governance and Ethics in the Boardroom

David Howell -Non-Executive Director

David Howell is an accomplished executive and board director across a range of industries including financial services, retail, oil marketing and social media. Notably, David led the revitalisation and strong growth of a private equity owned Australian commercial cards business (including Motorpass) leading to a successful sale to WEX Inc. As General Manager, Financial Services at Coles Myer, he substantially influenced debit and credit card reform in the Australian payments industry. David is also Chairman of Littlepay, an Australian Fintech and Board Director and Advisor for Tiger Pistol Pty Ltd, a social media advertising technology business.

Don Rankin - Non-Executive Director

Don Rankin joined the Hansen Technologies Board in 2019. He was one of the founding partners of Pitcher Partners and National Chairman of the Pitcher Partners Association for 11 years. Don currently sits on the Executive Council of the Victorian Chamber of Commerce and Industry and in the past was its President for three years.

With over thirty years’ experience advising private and family businesses across a broad range of industries, he specialises particularly in assisting clients in the management, growth and evolution of their business. Don sits on a number of Family Board Advisory Committees.

Hansen's share price has tumbled n the last couple of weeks.

There has been an announcement re management changes. I didn't see any particular reason for concern in that news.

Am I missing something?

The price is down ~5% today. plumbing 52 week lows. Three year lows in fact.

Has anyone got thoughts/insights on the situation?

Ord Minnett had a buy under $6.80 (a couple of weeks ago)

Morningstar $4.63.

Thanks team

Relevant for GTK too.

Looks like another competitor and to win over AGL they must do something different - not sure who has lost the contract.

• AGL: Australia’s second-biggest power supplier has signed a long-term deal to transfer all of its customers onto a new software platform called Kaluza, from the UK. It is so enamoured with Kaluza that it will also invest $150 million in the company for a 20 per cent stake. While it’s far from AGL’s biggest deal – the group has a $7.1 billion market capitalisation – it is a significant cheque given competing demands for capital and investment inside AGL’s business in the middle of the energy transition.

Announcement - ASX Release - Retail Transformation Program

Finally got round to reviewing the position with HSN and determining what action to take.

Discl: Held IRL and in SM

1HFY24 Summary

• Robust 1HFY24 results with growth in revenue, underlying EBITDA margin, strong cash generation, debt repayment and returning of cash to shareholders, underpinned by stable and predictable revenue, very low customer churn
• Net cash positive for the first time since 2017, $8m, pre-powercloud acquisition where cash reserves of ~$45.1m exceed debt of $36.9m

powercloud Acquisition Feb 2024

Market has been spooked by the powercloud acquisition in Feb 2024

The strategic rationale for the acquisition makes sense (1) buying a robust, modern and entrenched suite of complementary billing software (2) opens access to the broader DACH region markets (3) at a stage in powercloud’s maturity that will benefit from the more robust Hansen discipline and processes to become more efficient and hence more profitable

Downside: 

• Requires ~$20m more investment over and above the upfront acquisition price of EUR30m
• Will adversely dilute short term FY24 underlying EBITDA by ~$7-8m, bringing FY24 underlying EBITDA margin to +26% from the normal pre-acquisition underlying EBITDA margin of ~+30%

HSN has a strong proven record of successfully integrating acquisitions into the broader HSN business - this acquisition should be no different. Must however, sit through the risk of margin dilution in the next 12-18M before powercloud can be fully earnings accretive.

Current Position and Action

• Price has been drifting towards a ~3-years old well-supported zone between ~$4.21 and ~$4.42
• this zone was a strong resistance zone for a good 18M prior to mid-Mar 2021 when the resistance was penetrated
• Since Mar 2021, this has been a strong support zone, successfully defended in Oct 2023, then April 2023
• If price falls into, or in the vicinity of the top up zone, increase position from current ~1.8% to 2.5%

Broker Research Report from RBC Capital Markets Feb 2024

Price target 5.60 (downgrade from 6.50)

The report is a bit old (from 21 Feb 2024) but does include the most recent result

Pulling out the important bits

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.

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.

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.

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.

Discl: Held IRL

THE GOOD

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

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

·      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

@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.

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.

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

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%.