After writing about Atlassian last week – and mentioning three ASX-listed software providers that have large global markets, namely Xero (XRO), WiseTech Global (WTC) and SiteMinder (SDR) – I decided to revisit some other global software stars of the ASX. Interestingly, none of this trio of stocks was developed in Australia, but their software is used all over the world.
- Gentrack (GTK, $9.20)
Market capitalisation: $952 million
12-month total return: 91.7%
3-year total return: 71% a year
FY25 (September) Estimated Yield: no dividend expected
FY25 (September) Estimated P/E ratio: 50 times earnings
Analysts’ consensus target price: $12.06 (Stock Doctor/Refinitiv, two analysts)
I looked at impressive Kiwi outfit Gentrack Group in February https://switzerreport.com.au/two-billing-software-stars/ [1] when it was trading at $6.77, and said there was “still plenty of upside for this emerging star. There still is.
New Zealand-based Gentrack provides essential software and services to the utilities and airports industries. The company has more than 60 energy and water utility companies as customers around the world, as well as a swathe of major airports: some of its customers include EnergyAustralia, Npower, Genesis Energy, Melbourne Airport, Sydney Airport, Gatwick, Schiphol, Orlando International Airport, and Auckland International Airport. GTK moved across to the ASX (in a dual listing) in 2014.
Gentrack has two distinct software offerings. The core business, G2.0, is a cloud-based software that allows utility providers to manage and bill their client base, replacing cumbersome legacy billing systems with agile and efficient alternatives. The company’s ‘low-code/no-code’ product offering is particularly well-suited to enabling utilities to quickly introduce customer solutions geared toward the clean-energy transition, allowing them to offer products and services such as more affordable and accessible electric vehicle (EV) charging, the option to launch battery and solar panels, and digital applications that allow customers to control their energy assets (EV, solar, and batteries) from their phones with full control and AI functionality.
In contrast, ‘legacy’ software systems often need lengthy customisations and require new code to be introduced by system integrators. This improves the ‘time to market’ for Gentrack’s customers but also allows them to offer a competitive advantage, and a product that many consumers are demanding. Gentrack’s technology is also able to handle the increasing complexity and volume of data generated by real-time data capture by ‘smart meters.’ The company serves more than 60 utilities around the world.
The second product, Veovo, is an enterprise resource planning (ERP) software product built for the airport industry, to help manage passenger flows, flight information, baggage handling and other tasks. Gentrack positions Veovo as an “intelligent airport” platform. Veovo is now used in more than 140 airports, in 25 countries, using data insights to improve operations. Veovo is leveraging this business into the rail and transit, road traffic and ski and theme park markets.
In FY23 (the company’s financial year ends in September), the utilities business generated 87% of the revenue, and 84% of the net profit. The UK was the biggest contributor to revenue, accounting for 57%, with Australia 23%, New Zealand 12% and the rest of the world, 8%.
Gentrack says the airport and utilities industries are great industries to be in, as both are undergoing major transformation; its stated ambition is to grow revenue at a compound annual growth rate (CAGR) of more than 15% over the medium term. In May, announcing an upbeat half-year result – which the stock market rewarded with a rise of 18% in the share price – Gentrack upgraded its revenue guidance for FY24 from “at least NZ$170 million” to “circa NZ$200 million,” and also upgraded earnings before interest, tax, depreciation and amortisation (EBITDA) expectations from a range of NZ$20.5 million–NZ$25.5 million, to a range of NZ$23.5 million–NZ$26.5 million.
On those numbers, analysts expect GTK to grow its net profit by about 14% for FY24, but no dividend is expected. And if you are a ‘value’ investor, do not look at the price/earnings (P/E) ratios: 81 times expected FY24 earnings, and 50 times expected FY25 earnings. This is a growth story, of a company with two niche markets that it knows really well. Customer wins are flowing, and Gentrack looks good on virtually all metrics.
- Vista Group International (VGL, $2.58)
Market capitalisation: $613 million
12-month total return: 120.5%
3-year total return: 0.9% a year
FY25 (December) Estimated Yield: no dividend expected
FY25 (December) Estimated P/E ratio: 97.8 times earnings
Analysts’ consensus target price: $3.00 (Stock Doctor/Refinitiv, two analysts)
My second nomination also happens to be a Kiwi stock: Vista Group International, which is the global leader in its business, of cinema management software. I looked at VGL in May https://switzerreport.com.au/two-great-kiwi-asx-listed-companies/ [2] , when it was trading at $1.645, saying that although it is not yet profitable – because it invests heavily in research and product development – it’s a true global leader, and it looks like it has set its business up well to grow strongly from its current level.
That still holds.
Vista provides the technology solutions that power the world’s largest cinema circuits and film distributors. The company’s expertise covers cinema management software; loyalty, moviegoer engagement and marketing; film distribution software; box office reporting; creative studio solutions; and the Flicks movie, cinema and streaming website and app.
The company’s biggest product, Vista Cinema, provides cinema management software to the world’s leading cinemas: it supplies 38% of the global ‘large circuit’ cinema market. If China is excluded, Vista Cinema has 44.5% of the global market.
Like many software companies, Vista has mainly been installed enterprise software, but VGL has been progressively moving it to the cloud for several years now, through software-as-a-service (SaaS) applications.
The product range also contains:
- The Veezi cloud-based cinema management solution, which was built specifically for cinema exhibitors in the ‘small circuit’ (or independent) cinema market, categorised as those with fewer than 20 screens.
- Movio, the company’s cloud-based marketing data analytics and campaign management software for cinema exhibitors, film distributors, and studios.
- Numero, a product for film distributors and exhibitors, which tracks daily results at cinema level.
- MovieTeam, a cinema staff management and scheduling product.
- MovieXchange, its application to help exhibitors and distributors manage their digital marketing content.
- Maccs, which designs and develops film distribution software for film studios and distributors, covering theatrical distribution, movie prints and advertising as well as rights and royalties’ management.
- Powster, a digital creative studio that is a leader in film distribution marketing websites; and
- Oneview, a generative AI-powered mobile app and digital assistant designed to offer exhibitors real-time data, with access to insights such as box office, admissions and market share, food and beverage performance, operational key performance indicators (KPIs), member insights and release calendars.
All of these product solutions enable the company’s clients to capture value, either by reducing the cost of serving customers, or increasing revenue per customer, per admission. In particular, Vista is at the forefront of the “premiumisation” of cinema services, enabling its cinema operator clients to lift the spend per head, by developing premium experiences.
In 2023, Vista Group launched Vista Cloud, its integrated SaaS platform that represents the evolution of its existing Vista Cinema enterprise software. Along with Oneview, Vista Cloud is now the backbone of the offering. Having launched Vista Cloud, the company says it is on track for annual recurring revenue (ARR) of more than NZ$175 million by the end of 2025 (Vista uses the calendar year as its financial year). ARR is forecast to grow by more than 15% a year from 2025, toward Vista Group’s “aspiration” of NZ$300 million. The company has also guided the market to expect it to be cashflow-positive by the end of 2024 (that is, the current quarter), a year ahead of its previous plans.
In August, the company downgraded its revenue guidance from an expected range of NZ$152 million–NZ$157 million, to NZ$148 million–NZ$153 million. Of that figure, NZ$133million–NZ$137 million is expected to be recurring. But the FY24 EBITDA margin is now projected at 13%–14%, which is stronger than expected, and the 2025 EBITDA margin expectation was lifted from 15%+, to a range of 16%–18%.
In the wake of the trading update, the company’s largest shareholder Potentia (Admedus Capital), which owns 19.9% of the company, called a special 15.4% meeting, to vote on the removal of two existing directors and the appointment of two Potentia-nominated directors, on the grounds that (among other concerns) that VGL’s financial performance had underwhelmed. But in October, the second-largest shareholder, Fisher Funds (14.4%), issued a statement saying, “we remain supportive of the current Vista Board and company strategy,” and that it would vote against all of Potentia’s recommendations.
The corporate action took the VGL share price from $2.87 to $2.32 – down 19% – which in hindsight would have been a good entry point. Potentia withdrew its special meeting request in early November, and the shares have risen to $2.58. At that point, analysts see good scope for capital growth.
Vista is a true global leader, and as it leverages its cloud-based offering, and more of its clients go live on Vista Cloud, its revenue, ARR, EBITDA and free cash flow projections are becoming more substantive. It’s a really good story.
- FINEOS International (FCL, $1.35)
Market capitalisation: $457 million
12-month total return: –25.4%
3-year total return: –31.4% a year
FY25 (December) Estimated Yield: no dividend expected
FY25 (December) Estimated P/E ratio: negative P/E
Analysts’ consensus target price: $1.817 (Stock Doctor/Refinitiv, five analysts)
My third nomination, Irish-based software development company FINEOS, has been a disappointment. I was very positive on it in January https://switzerreport.com.au/three-of-the-best-foreign-listings/ [3] when it was trading at $2.06, but it has declined to $1.35 and is down 26% over the last 12 months.
But the case for FINEOS is very similar to that for Gentrack and Vista Group.
FINEOS specialises in software solutions for the insurance industry, in particular the life, accident, and health (LA&H) insurers, and government social insurance programs. It has a cloud-based platform across three main product categories:
- FINEOS AdminSuite for core process administration (including the flagship product, FINEOS Claims, which provides clients with an end-to-end software solution that manages insurance claims, from initial uptake through to closure). AdminSuite also has modules in Payments, Provider, Absence, Policy, and Billing.
• FINEOS Engage for digital engagement capabilities; and
• FINEOS Insight for data analytics, intelligence, and insights.
The FINEOS platform is the only purpose-built, end-to-end software-as-a-service (SaaS) insurance solution for the LA&H market. The company has 60 major insurers around the world as customers, including seven of the top ten US insurers and six of the top ten Australian insurers. About 79% of its revenue comes from North America, which is home to more than 30% of the LA&H market; 16% of revenue comes from Asia-Pacific, with the rest from EMEA (Europe-Middle East-Africa).
The beauty of FINEOS’ business (and its investment proposition) is that its insurer customers rely on its software to manage the insurance claims process; FINEOS enables full “quote-to-claim” administration. The increased regulatory pressure in the industry – for example, on privacy of customer data, and the audit trail of transactions – is a big business driver for FINEOS; as is the demand for a better customer experience. The legacy systems that most insurers use can’t cope easily with these pressures; but using FINEOS’ software, which can both automate most processes and improve customer service, can bring significant cost savings to insurers. Bringing its user-friendly technology to market to replace insurance firms’ outdated legacy systems is the company’s growth opportunity.
Like Gentrack and Vista Group, offering customers software products that perform “mission-critical” functions for its clients typically results in very “sticky” customer relationships: once they are onboard, they don’t like to change. This is the market opportunity for FCL: it is estimated that more than half of the world’s LA&H firms still use legacy systems that are inferior in most respects to FINEOS’ products. The flipside of this is that FCL may be perceived by the market as not penetrating its target market quickly enough.
FINEOS has told the stock market it expects to achieve positive free cash flow in FY25, and to be “self-funded thereafter.” Analysts do not see the company achieving net profit before FY26, but the consensus feeling is that it is making good progress; FINEOS has plenty of room for long-term growth in the multi-billion-dollar global ‘insurtech’ (insurance technology) industry.
Broking firm Macquarie says that continued new contract wins and showing investors the path to cash flow break-even are the key milestones for FCL: it has a 12-month price target of $2.11 on the stock.
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