Hansen Technologies Limited

HSN Details

Strategic Acquisition of Sigma Systems: Hansen Technologies Limited (ASX: HSN) caters to the energy, utilities, telecommunications, and pay-TV industries with developing, integrating and supporting the billing systems software. The diversification of the business comes in the form of delivering proprietary solutions across geographies and several sectors. The current market capitalization for the company stands at circa ~$739.97 million.
 
The company has announced the completion of the acquisition of Sigma Systems, after the recent definitive agreement with Sigma Systems (a leading catalog driven software provider) for its acquisition. The acquisition was effective from 1^st June 2019. The CEO of the company mentioned that the acquisition of Sigma is a strategic move to increase the value proposition to the telecom and pay-TV verticals and creates expansion opportunities for cross selling of Sigma products to the broad base of energy customers of the company. CY18 revenue for Sigma was AUD75.5 million and CY18 normalized EBITDA was AUD19.4 million, equating to a normalized EBITDA margin of 25.7%.
 
The strategic rationale for the acquisition includes several factors such as a high-quality business, leader across the globe in providing enterprise catalog-driven software products to communications, media and high-tech sectors. Sigma’s products are well designed to capture growth opportunities from the rollout of new telecommunications services such as 5G. Moreover, the earnings per share are expected to be accretive in FY20, excluding non-IFRS measures like amortization of acquired intangibles.
 

Key Metrics 1HFY19 (Source: Company Reports)
 
Hansen has a prudent capital management strategy. During 2018, the Management undertook significant analysis to assess the impact of the new standard and shared its findings with the Board and external auditors on a regular basis. The management was efficient on focussing on identifying the major revenue streams and operations of the group to further understand the nature of its contractual arrangements. The Group focused on the assessment of revenue streams (i.e., billing system license fees, implementation and customization services; and ongoing customer support and maintenance) which comprised over 99% of total revenues for the year.
 
The operating revenue for Hansen in 1HFY19 was $112.4 million, down by 5.1% on 1H18 and consistent with 2H18. This was primarily due to lower non-recurring revenues, underpinned by lower project work which followed the large part of work completed in the first half of FY18 related to the implementation of Power of Choice for the customers in Australia, and lower one-off license fees. In January 2019, the group exhibited a $3.2 million improvement in the working capital position. The company repaid debts of $4.7 million during the half, reducing the debt burden and supporting a strong balance sheet position to fund for future growth.
 
Revenue Guidance: With 1H19 revenue being higher than anticipated, the company expects 2H19 revenue to be in-line with 1H19. Whereas the management had guided previously for a stronger 2H19 revenue as compared to 1H19.

Considering the decent fundamentals of the company along with the strategic acquisition of Sigma which will enhance the customer base of the company and value proposition, we believe that the company is placed to derive synergies, going ahead. Moreover, the company enjoys strong management with a global focus, prudent capital management strategy and strong governance, which lay the foundation for success, going forward. Hence, we recommend a “Buy” rating on the stock at the current market price of $3.770 per share (up 0.533% on 05 June 2019).


HSN Daily Chart (Source: Thomson Reuters) 

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