Company Overview: Hansen Technologies Limited is a global customer care and billing solutions provider that develops, implements and supports software, and delivers data center, application and implementation services for the energy, pay television and telecommunications industries. The Company's segments include Billing, which represents the sale of billing applications and the provision of consulting services in regard to billing systems; IT outsourcing, which represents the provision of various information technology (IT) outsourced services covering facilities management, systems and operations support, network services and business continuity support, and Other, which represents software and service provision in superannuation administration. Its geographical segments include APAC, which includes sales and services across Australia and Asia; Americas, which includes sales and services across the Americas, and EMEA, which includes sales and services across Europe, the Middle East and Africa.


HSN Details

Integration of Sigma Systems to Drive Growth: Hansen Technologies Limited (ASX: HSN) is engaged in the development of billing systems software for varied sectors. The company operates through 36 offices across the globe, employing over 1,500 experts to serve a network of more than 600 customers in ~90 countries. The company’s growth strategy is focused on assessing appropriate acquisitions to enhance business offerings and in turn, provide better value to shareholders. With the above objectives in place, the company acquired Sigma Systems, which represents the largest acquisition of the company to date. As a result of the acquisition, Hansen Technologies’ operations were redefined with a proper balance between its two key segments – Utilities and Communications. The company’s customers and revenue were earlier weighted towards the Utilities sector, which has now been balanced with Sigma’s customer base mainly in the Communications sector. During the year ended 30^th June 2019, the company notified on several operational highlights in terms of major customer wins, expansion of the Vietnam Development Centre, client upgrades, development of new products, etc. On the financial front, the company performed decently, with key financial metrics in-line with the expectations. As a result of the achievements during the year, in the form of product development, contract wins, acquisitions, etc., the company is well placed to serve the market with flexible and configurable software products, that will define future growth.

Over the period covering FY15-FY19, the company reported an impressive growth trajectory, with revenue, underlying EBITDA and adjusted EPS posting CAGR of 21%, 16% and 10%, respectively.. Looking at the recent developments and growth initiatives, the management expects this growth trajectory to continue over the longer term. With the recent balance incorporated in the operations, the company now has a diversified customer base across all regions, that underpins future growth.


5-Year Growth Trajectory (Source: Company Reports)

The company started FY20 with great momentum as it started gaining traction through the acquisition of Sigma. Over the period, the company has expanded its customer base, witnessed cross-sell opportunities, and has entered new markets. Furthermore, the company has deployed various products for clients across Finland, Norway and Denmark. Going forward, it will continue to deliver on its growth strategy by assessing potential acquisitions, while it integrates Sigma Systems into the platform to avail synergies.

Financial Performance Highlights: During the year ended 30^th June 2019, the company reported operating revenue amounting to $231.3 million, up 0.2% on the prior corresponding year value of $230.8 million. Underlying EBITDA for the period came in at $55.8 million, down 7.0% on prior corresponding year EBITDA of $60.0 million. Underlying NPAT came in at $24.0 million, down 18.7% on the previous year’s underlying NPAT of $29.5 million. Both revenue and EBITDA for FY19 were in-line with the guidance provided by the company.

On 1^st June 2019, the company completed the acquisition of Sigma Systems, which provided a re-balance to the Group’s market portfolio. The above financial results were inclusive of 1 month of Sigma’s performance. Excluding Sigma, revenue for the period came in at $4.5 million, down 1.9% on the previous year, mainly due to lower one-off license fees and reduced project work generating lower non-recurring revenues. Recurring revenues for the period represented 63% of total operating revenue.

A look at the New Business Structure: As mentioned above, the company’s customers are now equally balanced between the two key verticals. In July 2017, the company had acquired Enoro, which had customers mainly in the Utilities sector. After the acquisition of Sigma Systems, the company added to its Communications sector customer base and devised a perfect business structure for greater industry focus. With equal weightage assigned to both the verticals, the company realised the need for proper management and appointed Niv Fernando and Simon Muderack as the CEO for the Utilities and Communications divisions, respectively. Considering the proforma FY19 revenue on the assumption that Sigma contributed to FY19 results for the entire year, the company also provided details on the revenue split for the year based on the vertical and geography, as depicted in the picture below.


Revenue Split based on Proforma FY19 Results (Source: Company Reports)
 
Shareholder Returns: During the year, the company distributed dividends amounting to 6.0 cents per share, as compared to the previous year dividends of 7.0 cents per share. Dividend for FY18 included a special dividend of 1.0 cent per share. The company simultaneously managed to retain sufficient funds for acquisitions. The company acquired a new syndicated multi-currency facility worth $225 million to fund the acquisition of Sigma, which remained unutilised to the extent of $35.5 million.
 

5-Year Dividend (Source: Company Reports)

Key Operational Highlights: Apart from the above financial highlights, the company reported some key operational achievements during the year, that should not go unseen. During the year, the company secured a major contract to deliver its second billing system in Finland. Another contract was signed for the delivery of its Meter Data Management solution in Sweden. The company also notified about the expansion of its Vietnam Development Centre, which now employs 100 people, as compared to a headcount of 9 in 2018. The development centre supports Hansen’s products in the Americas, Asia-Pacific, and Nordic regions. In addition, the company has also undertaken several client upgrades to the new version of its billing system.

The company now has a global portfolio of products that are flexible to the requirements of customers. The success of the recent product developments and acquisitions carried out by the company is evident in the accelerated customer wins. Although the company did not report an increase in FY19 earnings, it is expecting to return to growth in FY20 and anticipates double-digit growth in operating revenue and EBITDA on the prior corresponding year.

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table which together form around 44.25% of the total shareholding. Othonna Pty. Ltd. held the maximum number of shares with a percentage holding of 17.55%, followed by Franklin Templeton Institutional, LLC holding 5.68% of the shares.
 

Top Ten Shareholders (Source: Thomson Reuters)

Key Metrics: In FY19, the company had an EBITDA margin and net margin of 23.5% and 9.3%, respectively. Current assets of the company stood at decent levels, with a current ratio of 1.89x in FY19 as compared to 1.28x in the previous year. This represents an improved position to pay-off the short-term obligations of the business. As the company borrowed debt to fund acquisitions, debt-to-equity multiple for FY19 increased to 0.75x, as compared to 0.12x reported in FY18.


Key Metrics (Source: Thomson Reuters)

Financial Guidance and Outlook: For the year ended 30^th June 2020, the company expects operating revenue to be in the range of $305 million - $310 million, representing growth in the range of ~32% - 34% on the previous year. EBITDA for the year is expected in the range of $70 million - $76 million, representing growth in the range of ~25% - 36% on FY19. Moreover, the company reported several advancements on the platform as it entered FY20, including new market entries for Sigma in India and Hong Kong, by signing in Airtel and Smartone as customers. In Australia, Sigma signed in Vocus as an additional customer, further strengthening the customer base. In addition, it reported on the implementation of a few of its products across international locations that will contribute to future revenues. As per the FY20 outlook provided by the company, the above implementations will begin adding on to revenues from the second half of FY20. The company will be releasing the financial results for 1HFY20 on 28^th February 2020.
 

Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodologies:
Method 1: P/E Multiple Approach

P/E Based Valuation (Source: Thomson Reuters)
 
Method 2: EV/Sales Multiple Approach

EV/Sales Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: The stock of the company generated positive returns of 4.89% over a period of 3 months. Currently, the stock is trading slightly above the average of its 52-week trading range of $2.850 - $4.290. The company delivered good progress after the acquisition of Sigma Systems. FY20 began with new market entries for Sigma Systems that have expanded its scale and scope in the communications sector. Moreover, the acquisition has also provided for cross-sell opportunities in the Utilities segment. The company is delivering well on its capital management policy by maintaining a proper balance between the dividends paid to shareholders and funds retained to pursue growth initiatives. We have valued the stock using P/E and EV/Sales multiples based relative valuation methods and arrived at a target price offering an upside of lower double-digit (in % terms). Considering the increase in customer base, expected acquisition synergies, benefits from restructuring, product developments and implementation, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $3.620, down 0.822% on 7^th February 2020.
 
 
HSN Daily Technical Chart (Source: Thomson Reuters)

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