The trick in finding long term compounders is to focus on ‘competitive moats’, as evidenced by high barriers to entry, pricing power, customer retention, cash generation and organic growth.
Take Elecosoft – a specialist software developer for all things project management, visualisation and the maintenance of property assets – who this morning released strong H1’25 figures that were in line with consensus expectations.
Here ARR jumped 19% to £30.7m (or 12% LFL) with adjusted EBITDA and EPS coming in at £4.3m (+30%) and 2.7p (+29%) - on sales up 13% to £18.4m and delivering positive operating leverage (re 89% gross margins). Impressive results, especially given today’s tough macro environment.
Better still, this growth has been driven by higher margin software revenue and 110% NRR - with ARR now representing 81% of the group vs 74% only 12 months ago. Albeit partly offset by a contraction in less profitable one-off services and training income, where cost saving measures have already been implemented to mitigate the impact.
New client wins included a top 10 UK supermarket and two international fashion brands, in turn further widening hashtag#ELCO’s geographical footprint
So what does this all mean?
Well in terms of the numbers, house broker Cavendish (Target Price 200p/share) is anticipating FY25 turnover, adjusted EBITDA & EPS of £39.6m (est H2 £21.2m vs £16.1m H2’24), £9.1m & 6.5p/share respectively – climbing to £46.7m, £10.6m and 7.9p in 2026. Which hypothetically putting the stock on 4x-5x EV/sales, would generate an intrinsic worth of between 200p to 250p/share. In comparison, larger listed peers Autodesk, Nemetschek & Bentley Systems trade on 8x-10x multiples, as opposed to 3.2x for Eleco (at 160p).
CEO Jonathan Hunter, commenting: “I am pleased to report ongoing improvement in revenue, recurring revenues and enhanced profitability measures in H1’25, which is testament to our resilient business operating model in otherwise challenging geopolitical and macroeconomic times.
In addition to positive progress in introducing new customers and expansion of existing customers, we see promising opportunities following the successful acquisition of PEMAC in Jan’25 which has broadened our customer base and geographic reach, building further on our CMMS software offering alongside our established ShireSystem solution.
We remain confident in Eleco's forward trajectory and delivery of full year 2025 results in line with market expectations.”
Finally net cash closed June at a healthy £12.2m (vs proforma £8.5m Dec’24), providing ample fire-power to execute its M&A strategy.