After investing for more than 30 years, software remains one of my favourite sectors. This is, broadly, because of its secular growth, attractive gross margins, recurring revenues, positive cashflows, and high retention rates.
 
This type of outstanding visibility, robust demand, and super low churn, underpinned by a clutch of recent new logo wins with the likes of Cola-Cola, Philip Morris and Sanofi, are the reasons why brand compliance, rights and royalty management software developer FADEL (FADL) is confident of hitting its FY23 sales target of $14.6m - split $9.2m in the second half followin $5.4m in H1. 

Contracts typically generate between $250k-$500k annually, with revenues recognised on signature and as usual expected to renew in Q4.  FADEL's software is best-in-class, and the company is further bolstered by a rock solid balance sheet after raising £8m on AIM in April 2023 at 144p. 

With net funds of $7.3m in June, that provides ample firepower to potentially more than treble turnover organically over the next 5 years to $50m, a 27% compound annual growth rate. Add in some synergistic M&A, and we could eventually be talking about a $100m turnover group, up from the current £30m market cap.
 
House broker Cavendish has a 260p a share target price based on the firm becoming cashflow and adjusted PBT positive in 2025 on turnover of $22.2m.
 
Let's not forget too that the currently strong H2 run-rate will provide real momentum heading into FY24, especially as 80% of revenues are recurring in nature. In the meantime though, there’s still lots of wood to chop, as new staff get fully up to speed. 
 
CEO Tarek Fadel commented: “The outlook for FADEL remains positive as the strong trading momentum enjoyed in H1 continues into H2. Investments made in the business, alongside the wider shift towards digitisation, are driving increased demand for our offering, [especially] within the Life Sciences, Publishing and FMCG industries.”

One point for investors to bear in mind, however, is liquidity. Post IPO, Fadel's stock is ‘REG-S’ restricted until April 2024, meaning some UK brokers including Hargreaves Lansdown are unable to separately identify US citizens from UK nationals, and so can't trade the shares until the REG-S status is lifted. That said, this is not an issue for either AJ Bell or Interactive Investor.