Hansen Technologies Limited

HSN Details

Founded in 1971, Hansen Technologies Limited (ASX: HSN) provides software and services internationally to the energy, water, and communications industries. It helps more than 600 customers in over 80 countries in managing critical revenue and customer support processes. The company has a market capitalization of ~AU$1.09 billion as on 29^th March 2021.

Result Performance – For the first six months ended 31 December 2020 – (H1FY21)

For the first six months ended 31 December 2020, the operating revenue increased by 1.9% to $147.1 million on a constant currency basis versus $144.3 million in H1FY20. Whereas, on an actual currency basis, operating revenue declined by 1.5% to $142.2 million in H1FY21, due to the appreciation of AU$. On constant currency basis, EBITDA for the period increased 44.0% to $54.3 million from $37.7 million in the same period last year mainly driven by operating leverage and continued cost reductions. EBITDA margin for the period was reported at 36.9% versus 26.1% in H1FY20.

Key Data (Source: Company Reports)

Recent Updates

On 25 February 2021, the company announced its H1FY21 financial results, where the management declared an interim dividend of 5 cents per share, partially franked.

On 25 February 2021, the company announced 3 March 2021 as dividend Ex-date and 25 March 2021 as dividend payment date.

As per the release dated 9 March 2021, the company upgraded the financial guidance for FY21. As per the revised guideline, the revenue is expected to be in the range of $316 million to $326 million (constant currency) whereas $306 million to $316 million on a reported basis.

Outlook:

For FY21, the company has upwardly revised its EBITDA margin which is expected to be in the range of 37% to 39% from expected long-term margins of 32% to 35% due to recognition of $21 million licence revenue in H2FY21. The company has added new clients including DISH, M7, Ciena and Nautilus Solar that gives it the competitive edge of 5G, cloud and software-driven solutions, smart energy solutions and renewable energy.

Further, the company has generated operating cash flows of $39.8 million, which is being used to retire net external debt of $10.3 million, fund capital expenditure of $8.8 million, reduce lease liabilities of $3.1 million and pay dividends of $13.0 million (net of dividend reinvestments). These developments specify that the company is able to generate and manage cash well by acquiring new clients, which in turn will strengthen the financial performance of the company and subsequent impact on the balance sheet.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Weekly Chart

(Source: Refinitiv (Thomson Reuters))

Note: The purple color line in the chart depicts RSI (14-period) .The yellow color line represents trend line.

HSN stock price broken out its horizontal channel pattern at AU$4.733 level on the weekly chart, and after that price has touched the all-time high of AU$5.88 (on 15 March 2021). The stock price has gained ~63 percent from January 2020 low of AU$3.60 to the recent high of AU$5.88. However, the momentum oscillator RSI (14-period) is trading at ~73 levels near to overbought zone, a correction from here may drift the price lower towards the support level. An important support level for the stock is placed at AU$4.733, while, the key resistance level is placed at AU$5.88.

Stock Recommendation:

The stock has witnessed a rise of ~41.05% in 3 months and over the last 6 months, it has increased by ~34%. In line with this, the stock reported an increase of ~85.7% in 9 months and ~88.99% in 1 year. The stock has a 52-week low and high of AU$2.607 and AU$5.880, respectively and is currently trading above the average of 52-week high-low range.

Considering the aforesaid facts, we have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price which reflects a fall of high single-digit (in % terms). We believe the company can trade at a slight discount to its peer EV/Sales (NTM Trading multiple) considering the lower ROE and higher Debt/Equity ratio as compared to the industry median.

Considering the aforesaid facts, we give a “Sell” recommendation on the stock at the current market price of AU$5.360 per share, down by ~2.72% on 29^th March 2021.

HSN Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

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