Time to buy the dip
Eleco is an IRP-rich firm that is trading at an unjustified discount to peers (2.4x fwd EV/sales vs 7x sector), that is also benefitting from powerful, secular tailwinds (eg digitisation of all things construction/property related).They announced this morning that FY21 EBITDA would hit £7m – 11% above our £6.3m forecast - on turnover up 8% on a LFL basis to £27.3m (£25.2m LY & ED £26.8m). This is driven by an 8.5% jump in recurring revenues to £15.4m with standout performances from ShireSystems and SaaS/subscription.
Indeed a number of customers (eg a major Irish building products manufacturer operating across Europe) have even decided to standardise on the firm’s mission-critical, collaborative and cloud-enabled asset management application.
Going forward, we expect this trend to continue with headline growth flat this year (+1.1%), but re-accelerating thereafter. Meaning despite the better than expected 2021 out-turn, we’ve prudently held our 2022 adjusted PBT target of £2.9m on turnover at £27.6m. Likewise profitability & cashflow should pickup from 2023 onwards, eeturning to pre-pandemic levels of >20% and 100%+ respectively by 2026. By then, ARR should also represent c.75% of the group, delivering consistent double-digit top & bottom line progression.
We have nudged up our valuation to 154p/share (previously 150p). At 92p, Eleco trades on modest 2022 EV/sales & EV/EBITDA multiples of 2.4x and 12.1x respectively, equivalent to a wide discount to BuildTech peers.
Elecosoft is a provider of integrated software applications and related services to international architectural, engineering and construction marketplaces and property management industries. Co. develops its specialist software through its own development teams in Sweden, Germany and the UK. Co. services its customers directly in its primary markets of Sweden, Germany, Benelux, the U.S and the U.K and indirectly to its non-core markets through a network of channel partners.
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