Small Caps | Feb 24 2023
This story features HANSEN TECHNOLOGIES LIMITED. For more info SHARE ANALYSIS: HSN
Hansen Technologies' H1 missed the mark, but management remains confident all shall be better in the second half.
-A disappointing H1 performance has put the share price of Hansen Technologies under pressure
-First half results were below expectations, but management has stuck with its full year guidance
-Acquisitions remain key for future growth, but management is determined to stay disciplined and patient
By Danielle Austin
The first half financial performance from Hansen Technologies ((HSN)) fell short of analysts' expectations, disappointing some investors, but the result also contained sufficient signs suggesting solid earnings growth will be achieved in the second half. Despite declines in both earnings and net profit, management retained its full year guidance.
Earnings in the half declined -17% year-on-year to $45m and net profit declined -24% to $24m. While revenue remained broadly flat at $149m, recurring revenue booked a 7% increase. Analysts expect this latter metric, alongside recent contract price increases, will drive earnings growth over the coming half.
Hansen Technologies is a software and services provider for the energy, water and communications industries. The company offers a full suite of services for customers, including development, integration and support of billing systems software. Its platforms assist clients in managing and analysing customer data, revenue management and customer support.
Reiterated full year revenue growth guidance from the company suggests second half revenue between $156-162m, or 4.8-9.4% growth half-on-half, with consensus predicting a midpoint result of $159m.
Ord Minnett (Buy, target price $6.00) was one broker disappointed by the H1 performance, though management's guided revenue outlook is perceived to be positive. Ord Minnett expects merger and acquisition activity will ultimately prove a positive catalyst for the company, but warns timing is uncertain and patience will likely be required before benefits emerge.
While management at Hansen Technologies continues to review M&A opportunities, the company stated it would not hastily move into a transaction for a short term benefit, risking it would prove ultimately dilutive for shareholders.
Shaw and Partners (Buy, target price $6.20) highlighted patience has been key to Hansen Technologies’ historical merger and acquisition success. With the company outlining a short to medium-term $500m revenue target, this broker expects Hansen will not acquire unless it can demonstrate sufficient value to the business, anticipating no new deal will be announced until valuations decline further.
Employee churn expected to have stabilised, associated costs should not impact second half
Morgan Stanley (Overweight, target price $5.75) feels the first half result proves Hansen Technologies to be a “disciplined allocator of capital”. This broker highlighted the first half result was impacted by higher staff costs as the company rebuilds to pre-pandemic levels.
According to Hansen, the significant increase in employee churn has now stabilised and the subsequent impact on earnings margins should ease as recruitment and training expenses decline.
Morgan Stanley also noted impact from lower licence renewal fees, and higher research and development costs for product development. It sees headwinds as temporary. This broker expects Hansen can deliver an underlying earnings margin above 30%, slightly below peaks reached during the pandemic, but above the company’s expected long-term sustainable margin of 30%.
Having recently initiated on the stock, UBS (Buy, target price $6.30) is predicting Hansen Technologies can deliver 13% year-on-year earnings growth in its second half. Despite the decline in earnings and net profit, this broker feels the market should focus on recurring revenue growth which should support future results.
At initiation, UBS highlighted it was attracted to the company’s high level of recurring and defensive revenues, low levels of customer churn and the strong balance sheet.
FNArena's consensus price target, which is derived from Morgan Stanley, Ord Minnett and UBS, sits above $6, suggesting 26.7% upside from yesterday's closing share price of $4.75.
Consensus forecasts, derived from the same three brokers, are projecting 27% EPS growth for FY23, followed by 4% the following year. Dividend payments are forecast at 10.7c this year and 11.2c next for respective yields of 2.3% and 2.4%.
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