Often when people think of technology stocks, they think of fast growing companies, with sales growing strongly but profits and cash flow yet to follow. But there is another category of technology stocks that are already profitable, sometimes very, that generate strong cash flows, and have a mature customer base. Hansen Technologies (ASX:HSN) is one of these.
Hansen was founded over 50 years ago. They design and provide customer information and data management software systems for the utilities, energy and communications sectors. They have a well established customer base, with their leading customers averaging over 10 years with the firm. Churn rates are very low at less than two percent with 95% of their revenue derived from their own intellectual property.
They are also a global business with their revenue well diversified throughout the world. 58% of revenue in 1H FY24 was sourced from the EMEA, followed by Asia Pacific and The Americas. About 58% of revenue was derived from utilities (gas, electricity, water) and the balance from communications.
The business demonstrates steady, albeit not spectacular organic growth. Revenue is on track to grow organically by 5% to 7% in FY24. Currently their revenue is about $330 million. On top of that they expect to add a further $16 to $18 million in revenue from the purchase of powercloud in February resulting in overall forecast revenue growth of about 12%. The market is forecasting a further 11% of revenue growth in FY25 which will include a full year contribution from powercloud as well as organic growth.
Powercloud is a German company that develops billing and customer management software for utilities and regional municipalities across Germany. This aligns closely with Hansen’s product suite and enables them to expand their presence in Germany and surrounding countries. The investment consisted of €17m purchase price and an additional €13m working capital injection, all of which was funded by the existing debt facilities. The Powercloud business is not currently profitable, but Hansen believes that it will be EBITDA accretive in FY25.
They have a large focus on growth through acquisition, looking for opportunities to build scale. They have established a team focused on M&A to search and screen for value-accretive acquisition growth. In June 2023, Andrew Hansen shifted from the dual roles of Managing Director and CEO to Managing Director only, passing the CEO role to Graeme…
