Altium Limited (ASX: ALU) increased its revenues by 13% year on year (yoy) to $80.2 million in the fiscal year of 2015, as its strategies have been paying off, while its net profit after tax rose 38% yoy to $15.4 million on the back of solid operating leverage. The group’s subscriber’s growth witnessed outstanding performance during the year, rising by 47% yoy to 28,000 subscribers. ALU also improved its EBIT margin to 27% in FY15 as compared to 24% in the corresponding period of last year and acquired more than 1,680 new accounts during the period at an average of 1.46 seats per account. The group enhanced its subscription renewal rates at major regions, with its renewal rates rising by 3% yoy to 84% during the period. The group’s cash improved to USD 61.9 million driven by the capital raising in last year September. ALU reported an unfranked interim dividend of 8 cents per ordinary share leading to the total dividends to 16.0 cents in the fiscal year of 2015.
Altium’s Compound Growth by Regions (Source: Company Reports)
Enhancing business in US and EMEA regions through acquisitions:
Altium delivered solid growth in Americas, leading to a compounded annual growth of 16% in the last five years. On the other hand, the group’s EMEA region did not perform as estimated due to Euro currency pressure. Therefore, the group is focusing more on its EMEA business to offset the pressure coming from the falling Euro currency and poor economic conditions. Accordingly, ALU is targeting growth through acquisitions and accordingly acquired Ciiva, a provider of cloud-based electronic component management system, which gets supply chain intelligence from information sources that were conventionally fragmented and make it a lot more easier for engineers. ALU got all of Ciiva’s 11 engineers through this acquisition. Altium also acquired Octopart, a leading provider of electronic parts data and specialized online inventory search. Management reported that the Content on the Octopart website has market and technical data for over 30 million electronic and industrial components. Moreover, Octopart also built a long-term, recurring-revenue base through its component distributor and manufacturer customers. Management also commented that Octopart, would be the basis for ALU’s next generation smart content creation and delivery platform, wherein information part, design data and supply chain intelligence would come close and speedup the design process for engineers. Accordingly, Altium targets to monetize this opportunity by delivering smart content and actionable supply chain intelligence to makers and design engineers who want to develop the next generation of connected devices. Altium estimates to get all the 15 New York-based employees from Octopart. Apart from these two acquisitions, Altium also entered into a strategic partnership with Computer Simulation Technology, a german based firm to offer electromagnetic simulation and analysis functionality which would assist the group to focus on its capability gaps as well as enhance its addressable market in PCB design.
Altium’s subscriptions (Source: Company Reports)
Outlook:
The group intends to generate a solid mergers and acquisitions pipeline while anticipates to reach a revenue goal of $100 million by fiscal year of 2017 through its organic growth as well. By making Octopart and Ciiva acquisitions, Altium took a major step towards its evolution of content strategy. Management reported that the strict integration of CAD models as well as supply information would bring a change on its way of selecting parts as well as performing component management during and post the design process. The group estimates these acquisitions to be accretive to its earnings per share (before amortization) during the fiscal year of 2016. Search for new CFO is also underway to identify a suitable match for a continual growth phase.
Altium’s subscription growth sources during FY15 (Source: Company Reports)
Stock Performance:
The shares of Altium Limited generated overwhelming returns during this year, and surged more than 46% (year to date returns as of 02 October 2015), driven by its acquisitions and outstanding FY15 performance. Investors generated solid returns from the stock given the current tough market conditions, wherein the broader S&P/ASX 200 posted a negative year to date returns of around 6.6%. Despite delivering such a rally, Altium shares are still at attractive valuations and have a cheaper P/E of 4.95x. The group also has a decent dividend yield of 3.32%. We believe that Altium would continue to improve its earnings in the coming periods and accordingly maintain our positive stance on the stock. Based on the foregoing, we give a “BUY” recommendation at the current stock price of $4.7.
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