When the going gets tough, the tough get going. These are the kinds of stocks I like to own during more challenging times, especially in the construction sector, which is experiencing headwinds of high interest rates, deferred orders and protracted decision making.
Nonetheless, despite this non-ideal backdrop, BuildTech software developer Eleco (ELCO) said today that it continued to trade "in line with FY'25 expectations" - posting H1'25 sales up 13% to £18.3m (my est 6% LFL) - a highly creditable performance.
Better still, this growth was driven by higher-margin recurring revenues (record ARR up +19% to £30.7m and 23% leap in TRR [16% LFL] to £14.8m) that in total now represent 81% of the group vs 74% 12 months ago. While this was partly offset by a contraction in less profitable one-off services and training income, cost-saving measures have already been implemented to mitigate the impact.
So what does this mean?
Well, in terms of the numbers, house broker Cavendish (target price 200p/share) is anticipating FY'25 turnover, adjusted EBITDA and EPS to come in at £39.6m (est H2 £21.3m vs £18.3m H1 and £16.1m H2'24), £9.1m and 6.5p/share respectively - climbing to £46.7m, £10.6m and 7.9p in 2026 - potentially putting the stock on 4x-5x EV/sales, which would generate an intrinsic worth of 200-250p/share. In comparison, larger listed peers Autodesk, Nemetschek and Bentley Systems trade on 8x-10x multiples as opposed to only 3.6x for Eleco (at 180p).
CEO Jonathan Hunter, commenting: "The Group has delivered record recurring revenue in H1’25, strong cash generation and improved operational gearing, despite challenging geopolitical and macroeconomic conditions. New customer acquisition and expansion within the existing recurring revenue customer base are progressing well and we continue to see positive opportunities following the successful acquisition of PEMAC, which has broadened our CMMS Asset Management and Maintenance customer base."
"During the period, construction markets have continued to experience deferred pipelines which in turn have reduced growth in our one-off services and training income. We have implemented measures and initiatives to mitigate and address these non-recurring effects as we expand recurring revenues, which now account for 81% of total revenues at the half year. The Board remains confident in delivering results in line with market expectations for the full year."
Finally, net cash closed June at a healthy £12.2m (vs proforma £8.9m Dec'24, post £5.2m PEMAC acquisition in Jan'25), providing ample firepower to execute its M&A strategy.
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