Elecosoft is a BuildTech, asset/property maintenance & visualisation software specialist 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/maintenance and Building Information Management (BIM).
This morning the firm posted another record set of numbers, characterised by a 11.1% jump in sales to £22.2m (+5% LFL, constant currency - CC), expanding EBIT margins (17.6% vs 13.9% LY; split 18.4% H2 & 16.6% H1), better than expected PBT (+39% to £3.7m) and robust cash generation (101% conversion, OCF +7% to £4.5m). What's more, 57% of turnover (+14% to £12.6m) came from recurring maintenance, support and SaaS activities (vs 55% LY; split 58% H2 & 55% H1) importantly, providing healthy forward visibility, alongside a durable economic moat and resilient business model.
Looking forward, we've prudently forecast 2019 turnover to climb 18.8% to £26.4m , on the back of mid-single digit organic growth, augmented by the natural flow-through of last year's M&A. Investors should however be aware that our projections are conservative in light of the buoyant demand for BuildTech - a $6.6bn sector which is predicted to ramp at an annualised 11.3% to 2021 ably supported too by the $14.5bn asset/property maintenance (8.7% pa) and $4.9bn visualisation (9.5%) verticals.
The good news for investors is that at 72p, most (if not all) of this upside appears to be in the share price for free. Moreover due to ELCO's scalability, 90%+ retention rates, favourable operating leverage, attractive EBITDA drop-through rates and international footprint (63% outside the UK) - 2018 adjusted EPS and closing net debt both came in slightly ahead of expectations at 3.9p (+34%) and £2.1m respectively. The latter representing a comfortable 0.45x EBITDA and enabling the dividend (0.9% yield) to be lifted 13% to 0.68p (5.7x covered) and be paid on 31st May, with a script alternative (conversion price 74.72p) available and an ex-div date of 28th March.
Consequently bearing all this mind, we reiterate our adjusted EBIT forecasts for this year (+15.8%) and next (+14.8%) of £4.5m and £5.2m, together with the 115p/share valuation.
