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.
