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.
Together this has created a virtuous circle for ELCO shareholders of improving results, rapid growth, robust visibility and future take-out possibilities, as the firm becomes one of the few remaining sizeable, pure-play BIM experts left standing.
In terms of results, ELCO posted 2017 turnover up 12.4% to £20.0m (split 4% LFL, 4% forex & 4% acquisitions), EBIT margins of 13.9% (12.4% 2016), 102% cash conversion and a 50% hike in the dividend to 0.6p (yield 0.8%). The balance sheet is ship-shape too, closing December 2017 with £1.0m of net cash.
For 2018, we expect more of the same on the back of 8% higher revenues (£21.6m) split 7% H1 & 9% H2. Leading to a 21.4% jump in adjusted EPS (20.2% LY) to 3.5p, as the benefits of operating leverage and 30%+ EBITDA drop-through rates kick in.
A view consistent with today's trading update: like-for-like top line growth accelerated from 4% in 2017 to 7% (constant currency) during the 1st 4 months. Translating into significantly higher PBT than last year, and [being] comfortably in line with market expectations.
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.
