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Despite the mainstream benchmark in Australia – the S&P/ASX 200 – being fallen by 21.33% as of 1 April 2020 since the beginning of the year, some of the technology companies have been still performing better than the index downfall.
We will discuss the business models of these technology companies and some of the announcements made by them over the recent past.
Xero Limited (ASX:XRO)
As of 1 April 2020, Xero is down by 12.85%, an outperformance of close to double digit in percentage terms against the S&P/ASX 200.
Cloud-based service provider, Xero is one of the tech stars on the ASX. Its business model appears less susceptible to COVID-19 crisis directly. However, there could be risks to new business development as small businesses are facing tuff times across the globe.
Long term fundamentals of the company remain intact given its enterprise management services proposition to small businesses and room for growth in the global markets. By September 2019, the business had 2 million subscribers and NZD 764 million in annualised monthly recurring revenue.
To the half-year ended 30 September 2019, the business posted free cash flow of NZD 4.8 million, showing an improvement of NZD 14.6 million. Its international revenues (outside ANZ) was around NZD 126 million, which could pose currency headwinds given the severe depreciation in local currency.
Although it is important to note that the currency challenges were largely intensified after late February, and the company is hedging its cash flows, which could provide some relief to foreign exchange translation headwinds, depending on the management of the hedges.
On 2 April 2020, XRO last traded at $ 65.78, down by 5.353% from the previous close.
Iress Limited (ASX:IRE)
As of 1 April 2020, Iress is down 18.06%, outperforming the benchmark index S&P/ASX 200.
Iress Limited is a company which provides software to the financial services industry. It has been on an acquisition spree, even in March 2020 – the company has reported another acquisition – depicting the headroom for capital allocation, despite COVID-19 blues.
Last month, the company acquired O&M Systems, which serves pension market in the UK. Financial advisors use the services for data comparison, and the business has over 2k clients.
IRE noted that the acquisition complements the capability of the company in the UK markets. New acquisition was said to be integrated with the flagship product of the company – Xplan and will also continue to be an independent research service. It shall be immediately available for the existing clients of the business.
Iress enables its clients to deliver high quality financial advice, manage investments, navigate financial markets, simplify mortgage applications, comparing and screening insurance products, and administration of superfund and service members.
In the year ended 31 December 2019, the operating revenue of the business was $508.9 million, segment profit was $152.1 million, NPAT was $65.1 million. It announced total dividends of 46 cents per share in FY2019.
On 2 April 2020, IRE last traded at $10.38, down by 3.442% from the previous close.
Altium Limited (ASX:ALU)
As of 1 April 2020, Altium, a software-based company, is down 16.48%, outperforming the benchmark index S&P/ASX 200.
In the half-year ended 31 December 2019, the company achieved revenue growth of 19%, taking its revenues to USD 92.8 million. Profit before tax improved by 23% to USD 31.8 million, and its EBITDA margin was 40%, excluding the impact of AASB 16.
The company had around 46.7k subscribers and 59% of its revenue has been recurring in nature. Cash at the end of the period was USD 80.7 million and it was noted that the business is debt free.
During the period, the company experienced record growth of 19% in new Altium Designer seats whereas its subscriber base grew by 16%. Its core business segments experienced double digit growth revenue expansion.
Altium’s reported expenses for the period were USD 58.5 million compared to USD 49.8 million in the previous corresponding period. Its EBITDA for the period was USD 36.8 million compared to USD 28.3 million in the pcp.
Earnings before interest and taxes were USD 31.5 million as against USD 25.4 million in the pcp, showing an improvement of 23%. It paid USD 8.7 million in taxes and profit, after income tax paid for the period, was USD 23.1 million as against USD 23.4 million in the previous corresponding period, down by 1%.
China also contributed to a record revenue growth of 27%. The Business also launched Altium Designer 20 having a range of capabilities emphasising on advanced design and complex projects. It also launched the new cloud platform Altium 365.
On Guidance, the company noted that it expects to report full-year revenue in the range of USD 205-215 million at an EBITDA margin between 39-41% on a reported basis. Altium also noted the impact of coronavirus in China and Octopart.
By 2025, the company intends to clock a revenue of USD 500 million and a subscriber base of 100k, and it would continue to look for M&A opportunities to make a floor for the long-term goals of electronically centred product design and realisation.
On 2 April 2020, ALU last traded at $27.32, by 4.742 % from the previous close.
Megaport Limited (ASX:MP1)
As of 1 April 2020, Megaport is down 3.65%, outperforming the benchmark index S&P/ASX 200 significantly.
Megaport was founded to develop software-defined networking (SDN) based platform, enabling customers to have flexible interconnection services. Its services include cloud connectivity, cloud router, data centre interconnect, Megaport marketplace and IX peering.
Some of the customers include Adobe, Best Buy, Tesla, Fed Ex, ING, Mastercard, Major League Baseball, BHP, Zoom, New York Public Library and Gettyimages.
Last month, the company reported that it is concerned about the health and wellbeing of its very important assets – employees. In February, it also imposed staged travel and event restrictions, which were being intensified further as virus grips jurisdictions.
In early March, the company had tested the work from home capabilities of its employees, which achieved the desired results.
On Business impact due to virus, the company says it has ‘as a service’ business model. It was said that the business had not encountered any material disruptions for the quarter. However, there could be some impact due to travel restrictions, but the sales are executed remotely with the company’s sales team capable of working under such situations.
Due to the virus impact in China, the company was expecting some potential supply chain issues for the key components of electronic consumables and equipment. Proactively, the company ordered 6-month worth of consumables in January, and it is anticipated that supply chain issues would be minimal.
On the balance sheet, it was said that the business had over $100 million in cash, and 40% of its revenue is in USD, allowing for a balanced exposure to major currencies. MP1 is committed to drive global expansion of the business and having a headroom with respect to funding augments these intentions.
It is continuing to sell additional services to the clients and remains committed to fulfil the long-term aspirations of the business.
On 2 April 2020, MP1 last traded at $9.59, down by 4.387% from the previous close.
However, Technology One (ASX: TNE), an enterprise software company, has closed in green at $8.420 on 2 April 2020 rising by 1.814%, having a year to date return of 0.24%. The stock has been performing not only against the ASX technology benchmark Index which closed in red at 1,499.8 on 2 April 2020 but is also beating all the Australian indices amid the COVID-19 scenario. The PE ratio of the stock stands at 44.870x whereas annual dividend yield is at 1.44%. TNE has a smaller recurring revenue base as compared to its peers and its still in the process of transmitting its customer base to the cloud. Though the Company has been sailing through the storm strongly its second half looks uncertain as it still needs to retire lot of revenue each year. However, some market participants believe that stock is now reasonably valued as compared to the market current performance.
