One of the best unknown tech stocks on the ASX, Objective Corp is again on track to deliver another year of solid growth.

(I held years ago, and never got back in due to a stupid anchoring bias!!)

The company has reported preliminary results for FY21:

• Revenue up 36% to $95.1m
• ARR up 31% to $74.2m
• NPAT up 45% to $16m
• Cash balance of $48m
• R&D spend of 24% of revenue (all expensed)

CEO Tony Wallis said he expected a "material lift in revenue and profitability" in FY22.

You can read the ASX announcement here

At >100x earnings, my only problem with OCL is the price. That being said, with a high cash balance, fast growth, high quality cash flows and fully expensed development costs, that mulitple could fairly be normalised lower.

Congrats to all long term investors. Shares are up >10x in the last 5 years, and the company has returned 17% of the cost base in dividends (excluding franking credits!)

Objective Corp. has extended their on-market buyback. While this just gives them the option to repurchase shares, and they have a mountain of cash in the bank, it strikes me as a poor capital management initiative given the current share price (PE is around 85).

I think a special dividend would make more sense if they dont have any good use for the cash.

Objective Corp has acquired Australian 'RegTech' business iTree for $18.5m, or about 1.3x FY21 sales. It's customers include the Dept. of Home Affairs, Queensland Rail and Worksafe Tasmania.

iTrees products will be integrated into Objective's Content Solutions suite, and Objective will market these solutions to a wider market opportunity.

Objective has a great track record of making sensible bolt-on acquisitions, and this appears no different.

iTree is profitable and like Objective fully expenses R&D costs. The acquisition will be cashflow positive, EPS accretive and will be funded from existing cash reserves.

ASX announcement here

Objective Corp has issued an encouraging trading update for the half ending December 31, 2019.

Revenue is expected to grow by 14% to $33.2m, while operating profit should rise 24% to $5.8m.

The cash balance remains very healthy at $34.1m, a 16% improvement from the previous first half.

A wonderful company that continues to deliver. At the time of writing (share price $6.10), though, shares are on a P/S of 8.6 and an EV/EBITDA of ~35.

Reasonably high multiples, despite the strong and consistent growth -- although, as pointed out by others, partly explained by the fact they expense ALL of their R&D (many other tech companies capitalise this on their balance sheets and is therefore it is not included on the profit&loss statement).

For reference, they spent around $13m on R&D last year. If half of this were capitalised, the EV/EBITDA ratio would drop to roughly 24x.

ASX announcement here

R&D Focus

Objective Corp. has always had a huge R&D focus. In FY20, it will spend 20% of revenues on R&D.

NONE of this is capitalised, all is expensed on income statement.

Objective Corp is a capital light, founder led business with a long history of delivering outstanding shareholder returns.

Clients tend to be highly sticky governement departments. Around half of revenue recurring in nature. Indeed the business appears to be rather defensive (sales and earnings grew over the GFC) and is extrenely capital light. That enables the business to fund growth (it has a long history of significant -- and fully expensed -- R&D) as well as return a good deal of profit back to shareholders (Payout ratio tends to be between 50% and 75%)

The founder and CEO owns the vast majority of shares, is strongly aligned to shareholder interests and has many decades of experience as a successful capital allocator.

The company has no net debt and strong operating cash flows.

Shares are quite illiquid, but certainly one to consider for a long term hold. 

Objective has released its preliminary results for 2019.

Although revenue dropeed 1%, this is expalined by a large one off consulting project in the prior period. More importantly, this was replaced by much higher margin software revenue which saw NPAt grow by 23%.

Also of note, ARR was up 15%, and the cash balance strengthened significantly -- up 61% to over $34m (about 10% of the total market cap of the business).

Objective continues to invest heavily in its future growth, with 20% of revenue dedicated to R&D (which is always fully expensed).

A very solid result and a great company. It's just a question of price for me.

See full ASX announcement here 

A master at capital management

Objective Corp. has reduced its share count by a massive 32% since 2008, starting with the company aggressively repurchasing 11% of shares outstanding during the GFC.

Those that didn’t sell into the buy-back have seen their stake in the company — and their share of the profits — increase by about 47% over the past 9 years. So while profits have grown 310% in the period, per share profits have climbed 500%.

It did this all while being essentially debt free, and making numerous bolt-on acquisitions -- something that it's capital light nature greatly enables.

Incredibly shareholder friendly and prudent capital management

Recurring Revenue

Around half of revenue is recurring in nature -- providing for very reliable cash flows.

The company is transitioning a greater proportion of revenue to a subscription model.

ACR now $38m up 15% over FY17