The Citadel Group Limited

Scalable Solutions Driving Growth: The Citadel Group Limited (ASX: CGL) is a software and services company. CGL provides software and managed services in Australia. The Citadel Group deals in the e-health, national security/defense sectors. Recently, the company has acquired the government business of Gruden from IncentiaPay for the total amount of $1.65 million. Of which, 75% is payable on the completion of the deal and rest amount is subject to the working capital adjustment. The objective of this deal is to strengthen software capabilities in key government sectors. According to the management, this deal will provide valuable new SaaS platform capabilities and panel arrangements that will leverage new areas of government and private industry as the company continues to execute its business strategy of managing information in the complex environment. Moreover, Queensland Department of Transport and Main Roads inked a new 9-year deal with Citadel so that they can provide a secure and hosted managed service for the Electronic Development Application Management. In our view, the company has a bright outlook ahead at the back of decent growth across all areas of the business, and strong demand for its SaaS product range.


Scalable Solutions Driving Growth (Source: Company Reports)

On the analysis front, the company has consistently achieved higher Net Margins over the past two years. For FY18, the net margin came in at 18.1% compared to the industry average of 11.2%. Over the period, the company has also generated a significant return for the shareholders with ROE at 20.5% against the industry average of 11.3%. On the other hand, the company has maintained its debt/equity ratio of 0.22x in FY18 which is less than the industry average of 0.43x. Further, CGL has enough liquidity with the current ratio of 1.67x. Meanwhile, the share price has risen 21.75% in the past six months as at December 10, 2018 and trading at reasonable PE multiple of 20.820x, signifying decent opportunity at the current zone. Hence, considering fundamentals of the company and reviewing management future goals and current stock performance, we maintain our “Speculative Buy” recommendation on the stock at current market price $7.470.
 

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