There are many reasons for me to like IntelliHR:

• I understand its business model as a SaaS provider of ‘human capital management’ software
• It is a founder led company
• It is targeting a global market, with revenue already coming from several countries 
• Bevan Slattery is a significant shareholder, and he rarely puts a foot wrong

There is however one overriding reason for me not to like the company, which is the fact that it operates in a very competitive market and I am not convinced that IHR’s software has any uniquely compelling features. IHR doesn’t figure at all in Gartner and Forrestor analyst reports for ‘enterprise HCM’, but perhaps that is understandable given that IHR is primarily addressing the SME market, where 80% of their customers were managing the HR function using spreadsheets and manual processes before they became IHR customers.

Given my concern about competition, I thought I would start my research by trying to establish a possible valuation for IHR shares in 2025, based on a projection of the market share it may be able to claim. If this results in a pitiful value (which is my thesis at the start) then I won’t need to spend further effort researching the company.

Taking a conservative and very rough average of market forecasts, the TAM for HCM software in 2025 is assumed to be $20b USD.

This is the breakdown of the US Market:

• 40% of market is Enterprise (2500+ employees)
• 48% of market is Small Business (1-499)
• 12% of market is Midmarket (500-2499)

If I assume IHR is targeting the Small Business and Midmarket segments, and assuming this is 60% of the TAM, this gives IHR an addressable market of $12b USD. Then, given this is a very competitive market, if I assume IHR can win 5% of the market, this would give them revenues of $600m USD.

Next, looking at the price/sales ratios for the major SaaS companies, these range from 6.8 (Facebook) to 31.7 (Atlassian). Workday sits in the middle with a P/S of 10.3. 

So I’ll assume a P/S ratio for IHR of 10 in 2025, and revenue of $800m AUD. That gives a market cap of $8b AUD. Current market cap is $75m AUD. So even with some very dilutive capital raisings, it looks like there is a reasonable growth opportunity here after all.