Altium Limited

ALU Details

H1FY21 Business Update: Altium Limited (ASX: ALU) is engaged in the sale of computer software for the design of electronic products. The market capitalisation of the company as on 15 January 2021, stood at ~$3.72 billion. The company reported resilient business numbers in H1FY21 with a revenue of US$89.6 million, despite the challenging business environment owing to the outbreak of the COVID-19 pandemic. However, there was a revenue decline of 10% in America due to the severe impact of the pandemic. NEXUS also reported a decline in growth of 14% in the first half, however, it has a decent pipeline of deals in the second half of FY21. There was an improvement in Board and Systems revenue in Q2FY21 when compared to Q1FY21. There was a demand for electronic manufacturing in October and reflects PCB design growth, which will aid ALU’s sales in H2FY21. 

The company delivered resilient financial performance over a period of years and reported US$189.1 million in revenues in FY20.

Growth in Revenue and Earning Over the Years (Source: Company Reports) 

Outlook: Despite the challenging year due to the impact of COVID-19 the company witnessed a recovery in Q2FY21. It expects its transformation to digital sales will aid in earnings growth during the second half of FY21. It is of the view that it will deliver stronger H2FY21 results with business growth in the Americas, China and NEXUS, and maintains its full-year guidance. It expects revenue of US$200 million to US$212 million and EBITDA of US$76 million to US$89 million in FY21. It will release its H1FY2021 results on 15 February 2021.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: As per a recent update, ALU has entered into an agreement with FSN Capital to sell the assets of its TASKING business for US$110 million. This deal will enable the company to make future investments in Altium 365. ALU gave a negative return of 26.75% in the past three months and a negative return of 16.82% in the past one month. The stock of ALU is trading below the average of its 52-week trading range of $23.110-$42.760. On a technical front, the stock of ALU has a support level of $23.302 and a resistance level of $35.505. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers such as WiseTech Global Limited (ASX: WTC), Infomedia Limited (ASX: IFM), Livetiles Limited (ASX: LVT), to name a few. Considering the current trading levels and upside in valuation, consistent top-line growth over the past few years and PCB design growth expected in the near-term, we recommend a ‘Buy’ rating on the stock at the current market price of $28.220, down by 0.774% as on January 15, 2021.

ALU Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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