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Eleco exceeds market forecasts with 16% revenue growth and strong cash generation in FY24

08:46, 28th January 2025
Paul Hill
PMH Capital
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"Running one's winners" is easy to understand, yet difficult to execute. Not least because many investors use tight 'stop losses' which means they automatically dump winners when others sell. Plus, even long-term compounders do occasionally suffer steep falls, as happened to Nvidia yesterday (re Deepseek).

For me, the trick is to focus on secular growth and value creation, rather than temporary affects. In fact, if I believe the investment thesis remains intact, then typically I'll hold stocks through thick and thin.

Take Eleco (ELCO), a one-stop shop for all things Buildtech, project management, property asset management, and visualisation software, which I've owned for a decade and added on dips.

ELCO possesses a robust position in an expanding sector (re digitisation of construction), alongside sporting a blue chip client base, 90%+ retention rates and 77% recurring revenues, which provide downside resilience in the face of major dislocations.

Better still, ELCO today posted record FY'24 turnover, with ARR and LFL sales rising 18% and 9% respectively to £26.6m (£22.6m LY) and £32.4m (£28.0m LY). This is right in line with house broker Cavendish's forecasts, and driven by client wins, up/cross-selling, new products (AstraGPT and Astra Vision) and overseas expansion.

Similarly, year-end net cash nudged up to £14.0m (£12.0m Jun'24), with Cavendish expecting FY24 EBITDA and EPS to come in at £7.0m (£6.1m LY) and 4.6p (3.9p).

Sure, the pace of organic growth decelerated slightly in H2'24 to circa 6% vs 12% in H1, yet equally I suspect this might have simply been due to normalisation after a strong first half.

Going forward, Cavendish (target price 200p/share) is predicting FY25 turnover, adjusted EBITDA and EPS to rise to £39.6m, £9.1m and 6.5p/share, climbing to £46.7m, £10.6m and 7.9p in 2026 - meaning if one hypothetically put the stock on 3x-5x EV/sales, then this would generate an intrinsic worth of between 150p-250p/share. In comparison, larger listed peers Autodesk, Nemetschek and Bentley Systems trade on 9x-11x multiples vs. 2.8x for Eleco.

CEO Jonathan Hunter commenting: "We are delighted to report continued success and improvements in trading performance, which was ahead of market consensus, while reaching several strategic milestones for the Group. We demonstrated solid growth in total and recurring revenues and delivered strong cash generation despite acquisition payments and dividend increases."

"Strategically, we enhanced our technical capabilities, talent and scalability through the acquisition of Vertical Digital, an Eleco company and more recently strengthened our Asset Management operations with the €8.4m acquisition of PEMAC in Jan'25."

Finally, the Buildtech software sector is consolidating too, so don't be surprised if one day someone comes knocking at the door. Who and how much would be anyone's guess, albeit with 90%+ gross margins, the synergies would be material.

Stock Chart | ELCO

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The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.

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