Reporting season throws up a lot of interesting results, particularly in the smaller-company world, in which companies might not be posting standout results in terms of numbers, but look a bit deeper, and you can see turnarounds underway. Here are two such situations, from the micro-cap (sub-$300 million in market value) layer of the ASX.
1.Atturra (ATA, 91.5 cents)
Market capitalisation: $285 million
12-month total return: –6.1%
3-year total return: n/a
FY25 estimated yield: no dividend expected
Analysts’ consensus target price: $1.225 (Stock Doctor/Refinitiv, two analysts)
Advisory and IT solutions provider Atturra has been a voracious acquirer of businesses since it listed on the Australian Securities Exchange (ASX) in December 2021, with seven businesses snapped-up as it looks to build scale in the $51 billion Australian IT services market and expand both geographically and across industry sectors. The core business philosophy is to focus on delivering end-to-end IT capability at an enterprise scale for highly regulated organisations. Atturra’s strategy is to focus on expanding into industries with a high barrier to entry, for example, defence (because it requires security clearances), and industries without a clear market leader such as education, manufacturing, and local government.
The company has been assiduously doing that, and in December last year, it took on its largest deal yet, merging with ASX-listed managed services provider (MSP) Cirrus Networks, in a $58.6 million acquisition. Cirrus has boosted Atturra’s presence in Canberra, Western Australia, and Victoria, as well as increase its reach into the government arena and the energy and resources industries.
In the December 2023 half-year, Atturra lifted revenue by more than 34% to $111.1 million, and reported underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) of $11.1 million – both figures coming in toward the top end of the respective guidance ranges. The company reiterated its FY24 guidance for revenue of more than $235 million (compared to $167.6 million in FY23). Atturra says 50% of its revenue is now “predictable revenue,” being the combination of recurring revenue (currently 17% of revenue, mostly managed services) and long-term client revenue (33%).
Net profit for the half-year fell by 37.5%, to $2.7 million, but that was mainly due to more than $3.2 million on one-off acquisition costs; on an underlying basis, Atturra said net profit was up 23%, to $6.3 million. The company is cashed-up for further acquisitions, with a cash balance of $48.5 million on the balance sheet at December 2023.
At the half-year result, Atturra told shareholders that FY24 was “proving to be a transformational year” as it continues to build scale. The company is targeting revenue growth of more than 20% a year, in a mix of organic (its own business) and inorganic (from acquisitions) growth, and an EBITDA margin of about 10.5%. All up, it was an impressive half-year result, and with no change to FY24 guidance, the full year looks very promising, too. Atturra appears to be very attractive buying at these levels.
2.EROAD Limited (ERD, 75 cents)
Market capitalisation: $139 million
12-months total return: 27.8%
Three-year total return: –39.1% a year
Analysts’ consensus price target: 94.9 cents (Stock Doctor/Refinitiv, one analyst)
New Zealand transport and logistics industry technology company EROAD arrived on the ASX in September 2020, following a share placement that was priced at $NZ3.90 ($3.59) a share, which represented a 10.3% discount to the prevailing New Zealand Exchange (NZX) price. The shares initially prospered, reaching a record high on the ASX of $5.44 in July 2021, but it has been a fall from grace since then, with EROAD slipping as low as 41 cents in May 2023. But EROAD has mounted a determined recovery, and it looks like it has turned the corner.
It needs to – having knocked back, last year, a takeover bid from Canadian firm Constellation Software, at NZ$1.30 a share, saying the bid “materially under-valued” EROAD. Shortly afterward, the company mounted a NZ$50 million share issue, at a discount of almost half, and saw just 26.9% of the retail offer taken up.
EROAD wanted the funds to help fund its biggest growth push, into the North American market – a huge market in which the growth prospects are under-pinned by long-term industry tailwinds, including an increased emphasis on sustainability and electrification, increasing regulatory and compliance requirements, strong fleet consolidation opportunities and workflow digitisation.
EROAD’s s software is used to manage vehicle fleets, support regulatory compliance, improve driver safety, handle road user charges, track maintenance, and reduce the cost of operating a fleet of vehicles. The company designs and manufactures in-vehicle hardware such as dashboard cameras, operates secure payment and merchant gateways, and offers software-as-a-service (SaaS) value-added services.
In November 2022, EROAD announced the deal that is spear-heading its drive into North America, with Sysco, one of the largest food service distributors in North America, with 15,000 delivery vehicles – 9,000 of which will be fitted with EROAD’s CoreHub technology and SaaS solutions, in a contract that establishes EROAD’s credibility in that market. Indeed, since then, EROAD has pushed its connections in North America past 100,000, validating the company’s North American business as an investment in a high-growth opportunity in the largest addressable market.
In New Zealand, Australia, and North America, EROAD has more than 10,000 customers, monitoring more than 227,000 units, driven by 250,000 drivers, travelling more than 9.2 billion kilometres annually. Daily, more than 116,000 people use the company’s platform to ensure their drivers are compliant, that loads are being delivered, and driving efficiency and obtaining insight throughout their operations.
EROAD says this leads to safer vehicles being on the road each day, less fuel being used, goods being delivered more efficiently, and real money being saved in our customers’ businesses.
In the half-year to December 2023, EROAD met promises it made to shareholders to bring spending under control and focus on growth. Normalised revenue increased by 13%, to NZ$88.9 million ($83 million), and while reported earnings before interest and tax (EBIT) slid from $1 million in the first half of FY23 to NZ$400,000, on the company’s “normalised” measure, EBIT came in at NZ$1.9 million, from a loss of NZ$3.4 million in the first half of FY23. In FY23, Eroad racked up annualised monthly recurring revenue (AMRR) of NZ$153.7 million; for the December 2023 half-year, the company had already beaten that, lifting AMRR to NZ$169.1 million.
The company board affirmed guidance for the full financial year of 6%–9% revenue growth, to between NZ$175 million and NZ$180 million, with normalised EBIT of up to NZ$5 million. If that were to be borne out in the full-year, EROAD should be able to keep its upward share price trajectory on track.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.