Eleco Plc (formerly known as Elecosoft) is a developer of on-premise and Cloud/SaaS software for the Architectural, Engineering, Construction and Operator (AECO) and digital marketing industries. Its award winning 6D solutions (>100,000 users) cover project planning, estimating, design/CAD, visualisation, site operations and Building Information Management (BIM).
You can't keep a good business down
Elecosoft reported that, although H1’20 turnover dipped slightly to £12.2m (-4% vs £12.7m LY, -3% constant currency) due largely to COVID-19, adjusted PBT climbed 14% to £2.23m (£1.96m LY, or +23% reported £1.93m vs £1.57m LY). Boosted by favourable operating leverage, lower costs and higher EBIT margins - as tradeshows were postponed and less money was spent on travel & other discretionary items.
Encouragingly, net funds closed June at a robust £4.4m (worth 5.3p/share) vs £1.1m Dec’19 – up £3.3m in just 6 months (est. 139% cash conversion) - thanks to tight working capital management (re debtor days at pre COVID-19 levels) augmented by deferred tax payments. Providing plenty of liquidity to weather even the most extreme of possible 2nd infection waves, and optionality (re M&A) if potential acquisitions ever become available at attractive prices.
Furthermore, the outlook is improving with our stab-in-the-dark ‘guesstimate’ being that June saw positive LFL sales, assisted by the ongoing digitisation of the construction industry, launch of the new AI visualisation tool (eg Karndean) and North American expansion (eg US paint manufacturer Benjamin Moore).
In terms of valuation, the stock at 78p is attractively priced: trading on 2.4x 2019 EV/sales compared to typical industry multiples (pre COVID-19) of 4.0x – 7.0x. With the two closest rivals, Nemetschek & Autodesk, presently priced at >10x EV/turnover.Download Now Missing Out Get our research first
Profits jump 25% April YTD
Elecosoft have reported that although revenues declined 3% April YTD (2% constant currency: ED estomated split -14% month vs +2% Q1’20) PBT had jumped an impressive 25% YoY – as tradeshows were postponed and less money was spent on travel, hotels, marketing & other discretionary items.
Altogether, lifting year-to-date EBIT margins to circa 21% (ED estimate) vs 16.8% H1’19, and closing April with net cash of £3.1m, vs £1.1m in Dec’19.
Customers are also accelerating their own adoption of cloud & SaaS applications. Which in turn, helped to drive ELCO’s recurring revenues (re maintenance, support, SaaS) 6% higher April YTD, representing approx. 59% of the group (vs 56.8% FY19).
Looking ahead, given the more stable macro environment, we hope to reintroduce our forecasts and valuation - either in September at the interims, or perhaps at the H1 trading update in late July.
The stock at 77p appears attractively priced - trading on 2.4x 2019 EV/sales compared to typical industry multiples (pre COVID-19) of 4.0x – 7.0x. With the two closest rivals, Nemetschek & Autodesk, presently priced at >10x EV/turnover.Download Now Missing Out Get our research first
Beneficiary of the new digitalised world
Today the Board reported in line 2019 results. Delivering revenues up 14% (est. 3% LFL) to £25.4m (£22.2m LY), despite adverse forex (ED -2%, weaker SEK vs £) & other macro headwinds (Brexit, General Election & subdued Eurozone). Growth was split evenly across the UK +15% (£9.4m) & abroad +14% (£16.0m), with sales/head nudging up 3.8% to £101.2k (£97.5k).
Both 89.5% gross profit margins and positive operating leverage (32.9% EBITDA drop through rates) allowed R&D (£3.1m vs £2.8m LY) to be increased (12.2% turnover), of which £1.2m was capitalised (£1.0m). Likewise, adjusted EBIT climbed 15.0% to £4.5m (17.9% margin vs 17.8%), EPS +7.1% higher to 4.10p (3.82p) and net funds ended Dec’19 at £1.1m vs -£1.8m LY, reflecting 120% cash conversion (114%).
Elecosoft continued to trade “well” in Q1’20, with results only marginally impacted towards the end of March. Since then there has been a “degree of disruption”, particularly with regards to face-to-face services (19% sales). However we believe this will lessen over the next couple of quarters, setting up for a powerful rebound in 2021.
In fact many housebuilders, for instance Mace, Taylor Wimpey, Vistry & Persimmon, are planning a phased reopening this month under new government guidelines. And the construction industry, traditionally slow to embrace new technology, is now accelerating its adoption of ‘everything digital’.
Given the comfortable cash position, high retention rates & recurring revenues (57%), Elecosoft should provide a welcome port for risk tolerant investors to anchor in whilst the worst of the COVID-19 storm subsides. The stock at 74p looks attractively priced, trading on 2.4x 2019 EV/sales compared to typical industry multiples pre COVID-19 crisis of 4.0x – 7.0x
At the intersection of AI and BuildTech
1st class software, customers and cashflows
Strong H1’19 and in line with FY19 expectations
Promising start to the year
2019 sales set to jump 19% after record year
Disrupting the $10 trillion construction sector
€3.45m acquisition of VR/AR visualisation expert
Shire acquisition is 'amazing'
How to profit from the surge in BuildTech
A 'match made in heaven'
Building a smarter future
Delivering infrastructure projects on time, to-spec and within budget has proved a mine-field for corporates & politicians alike. Typically, 80% are late and 40% over-spent with little thought on how best to manage the asset once complete - not exactly ideal! Luckily things are changing...and fast. Technologies such as data analytics, IoT, VR/AR, robotics & artificial intelligence, are transforming the $8 trillion global construction market. In turn helping to drive strong demand at Elecosoft (ELCO), a leading BIM (Building Information Modelling) software developer.
Nor has M&A been too far behind either, with many deep pocketed rivals (eg JLG Technology, Bentley, Nemetschek, RIB Software, Autodesk, Trimble, Hexagon, Dassault & Oracle) hovering up competitors at often hefty premiums.
Even after its recent appreciation, the stock is still not expensive. Trading on EV/sales and PEG ratios of 2.5x (vs peers on 5x) and 1.0x (1.6x) respectively, whilst being 15% below our 85p/share valuation.
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