ARR climbs 8% LFL, with YTD PBT in line with ests

Eleco is transitioning into a highly cash generative & profitable SaaS winner. April YTD recurring revenues have climbed 8% to £5.4m (vs £5.0m LY) - representing approx. 60% of group sales vs 54% LY.

As anticipated, this growth was offset by a similar decrease in software licenses/services. Hence total turnover at £8.9m was flat in constant currency terms, & slightly down (4%) vs LY’s £9.3m - reflecting forex headwinds (eg SEK - £).

Equally though, April YTD adjusted PBT is tracking our £2.9m target, even after factoring in further ‘growth’ investment for later in the year. Elsewhere net cash closed April at a healthy £11.3m (or 13.5p/share vs £10.0m Dec’21), providing ample firepower for future M&A.

We have prudently held our adjusted PBT target of £2.9m, but shaved FY22 revenues by 2% to £27.0 (vs £27.6m B4), along with the valuation 6% to 141p/share (150p) due to sector wide multiple compression.

We think the stock is significantly undervalued based on both fundamentals and in relative terms. Trading on 2.3x 2022 EV/revs and 10.1x EV/EBITDA vs 5.7x & 17.5x for peers and implying potential upside on a rerating of >50% for patient investors.