Clarity of thought and simplicity of message are two vital components of any strategy. This morning, together with releasing ‘in line’ 2020 results, BuildTech software developer Eleco revealed its new ‘client led’ (vs product before) growth plan. Explaining how over the next 3-5 years, it aims to not only accelerate LFL revenues towards market norms (c.10% pa), but also deliver healthy profit margins and cash conversion. Not unambitious targets considering its transition to an ARR model from 56% today (53% 2019), alongside the challenges posed by rivals Autodesk, Nemetschek & Bentley Systems.
The trick is to predict where the ‘puck is heading’, whilst continuously innovating, adapting & refining its ‘go-to-market’ proposition. Here centred around ‘delighting the customer’, internationalisation, offering best-in-class technology, beefing up direct/indirect sales and hiring additional talent (eg CPO, CTO, HR, M&A, etc). Augmented by ‘value accretive’ M&A to further bolster its ‘cradle-to-grave’ product suite supporting the entire property life-cycle (say 75 years).
The good news is that due to the pandemic, the construction industry is now more receptive than ever to digitisation. Governments (eg US) too are set to spend $trillions worldwide to upgrade dilapidated infrastructure. Plus Eleco begins this journey from a position of strength, having amassed a portfolio of >40 applications, serving 1,000s of corporates.
Feb’21 YTD sales up 4% LFL vs ‘pre-Covid’ levels
Moreover, there are several ‘hot spots’ where the business’ software is perfectly suited. Namely data centres, smart factories, online warehouses and connected ‘Home &/or Build-to-Rent’ – often taking on the key project ‘control room’ role. In fact if successful, we think there is every chance that Eleco could actually surpass its own stretching goals in due course.
Meaning that for investors the upside potential is significant, since little of this appears to be factored into the shares, which trade on 2.9x 2021 EV/revs and 10.5x EV/EBITDA vs 9x & 26x for peers.