Joint Statement by Baillieu Limited Chairperson David Trude and Managing Director Gavin Powell

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Hansen Technologies (HSN) | Reissue and repeat

Overall: In a sign of confidence in the outlook, HSN has reissued earnings guidance for FY20F at the upper end of the previous range prior to withdrawal (3 Apr-20). We believe the business is in good shape, with earnings performance reflecting the essential nature of its core services. We reiterate a BUY rating.

Company guidance: HSN has provided earnings guidance for FY20F. The company expects operating revenue of $298-300m and EBITDA of $75-76m (pre-AASB 16 accounting standard). This compares to the company’s previous guidance (issued at the 1H20 result in Feb-20) of $300-305m operating revenue and $72-77m EBITDA, which was withdrawn on 3 Apr-20 in the midst of the COVID-19 crisis. Thus, the updated guidance is at the low end of the previous range for revenue and at the top end for EBITDA.

Key drivers of performance: HSN stated that, given the essential nature of the services its customers provide (ie. telecommunications and utilities), the company does not expect a “decisive downturn” to the operating environment. Meanwhile, on the cost front HSN has accelerated plans to rationalise costs from a number of areas of the business, including management structures within its recent Sigma acquisition (acquired May-19).

Changes to earnings: We upgrade our underlying EPS forecasts by 5-8% over the next three years. Our FY20F forecasts now sit within the company’s guidance range, with $298m revenue and $75m EBITDA (pre-AASB 16). Our revised forecasts show a significant improvement in margin performance, from 23.6% in 1H20 to 26.5% in 2H20. We expect the company to see steadily improving margins over the next three years. Meanwhile, our valuation and price target increase from $4.00 to $4.20.

Investment view: We see HSN as a relatively low-risk, well-diversified, and high returns stock in the context of the Australian small cap market, given it provides cash-flow critical software to essential services providers such as energy, water and telecommunications companies. This reissuance of guidance confirms the company’s strong earnings performance during the pandemic. We believe valuation remains attractive, with the stock trading on an FY20 PE of 16.9x, offering a two-year EPS CAGR of 12%. In that context, we reiterate a BUY rating. Click here to read full report

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