#ELCO

When a business enjoys a strong position in an expanding (+10% pa) and highly profitable (20%+ EBITDA margins) market - then strategically it makes sense to go on the front foot and invest both organically (eg new products) and by acquisition.
 
@Elecosoft – a specialist ‘BuildTech’ software developer (re project management, property related digital twins, asset maintenance & visualisation) – is doing this in spades.
 
Indeed I first purchased the shares way back in 2015 and have never sold. What particularly attracts me is #ELCO's secular tailwinds (re digitisation of global infrastructure/construction spend), blue chip customer base, 90%+ retention rates, 74% recurring revenues and resilience - even in the face of major dislocations such as Brexit and Covid. All hallmarks of a high quality firm.
 
Better still, I can also now add double digit organic sales growth and complementary M&A to the mix.
 
In fact today, @Elecosoft announced the €8.4m acquisition (split €6m upfront + €2.4m earnout) of Irish based PMI Software (@PEMAC1 ). A provider of SaaS asset maintenance & management software (CMMS) and associated services, that generated Nov FY’24 turnover & adjusted EBITDA of €2.7m & €0.6m respectively. Its applications are used by >100 international manufacturing organisations such as Coca Cola, Gyproc, Heineken, Wyke Farms, Keppel Data Centres, Stryker, SteriPack Group, LumiraDx, and Amgen. Across in highly regulated areas too, including life sciences and healthcare.
 
To me, this transaction is a smart, synergistic, earnings enhancing  & importantly value accretive bolt-on deal for Eleco. Accelerating its growth (re Shire) in the CMMS sector at an attractive price (re 2.2x – 3.1x trailing EV/sales, or 10x-14x EBITDA).
 
CEO Jonathan Hunter, commenting: "I am delighted to welcome @PEMAC1 , which will enhance our asset & maintenance management capabilities. @Elecosoft 's asset maintenance customers have shown substantial growth in recent years and together [we're] even better positioned to enhance productivity, safety and compliance for our customers through digital transformation of their processes. In addition, we are pleased that PEMAC's operational management team will remain with the business and is committed to supporting our joint growth ambitions.”
 
The acquisition is being funded entirely from Eleco’s own cash resources, which stood at a net £12m in Jun’24. 
 
Looking ahead, indicatively I’m forecasting 2025 turnover, adjusted EBITDA and EPS to come in at £39.5m, £9.0m and 6.4p/share respectively. Meaning if one hypothetically put the stock on 3x-5x EV/revs multiple, then this would generate an intrinsic worth of between 145p to 240p/share. In comparison, larger listed peers Autodesk, Nemetschek & Bentley Systems trade on circa 9x multiples – or almost triple @Elecosoft ’s current rating. Elsewhere house broker Cavendish have a TP of 200p/share.
 
Disclosure: I own shares in #ELCO, who is also a @VOXmarkets  client.