Elecosoft Share Price (ELCO)

Perhaps a trade or private equity bid is getting closer ?

A very good,near almost two A4pages on ELCO in the June SCSW monthly sheet.

https://www.proactiveinvestors.co.uk/companies/news/992934/eleco-grows-recurring-revenue-helped-by-strong-european-presence-992934.html

I took a closer look at the eleco Group's portfolio of companies. If I'm completely honest, I can't see any plausible strategy: On the one hand, there are companies like Consultec and Powerproject in the portfolio, which offer special planning and software systems in the area of construction, but do not actually offer SaaS software. On the other hand, there are ICON and Shire, which offer SaaS software solutions in a niche market, but in my view do not bring great potential for strong growth. Furthermore, there is VEEUZE, which actually offers ecommerce solutions for manufacturers and retailers of building materials in the broadest sense. This company offers innovative products including AI modules in the area of room configuration. These solutions are also 100% SaaS-based solutions.

All in all, therefore, a belly store that does not reveal a clear strategy. In my view, many software solutions can only be sold in the respective countries that they are expert systems for certain trades. This means that, with the exception of VEEUZE/Powerproject, no solutions are really scalable worldwide.

Eleco is transitioning into a highly cash generative & profitable SaaS winner. April YTD recurring revenues have climbed 8% to £5.4m (vs £5.0m LY) - representing approx. 60% of group sales vs 54% LY.

As anticipated, this growth was offset by a similar decrease in software licenses/services. Hence total turnover at £8.9m was flat in constant currency terms, & slightly down (4%) vs LY’s £9.3m - reflecting forex headwinds (eg SEK - £).

Equally though, April YTD adjusted PBT is tracking our £2.9m target, even after factoring in further ‘growth’ investment for later in the year. Elsewhere net cash closed April at a healthy £11.3m (or 13.5p/share vs £10.0m Dec’21), providing ample firepower for future M&A.

We have prudently held our adjusted PBT target of £2.9m, but shaved FY22 revenues by 2% to £27.0 (vs £27.6m B4), along with the valuation 6% to 141p/share (150p) due to sector wide multiple compression.

We think the stock is significantly undervalued based on both fundamentals and in relative terms. Trading on 2.3x 2022 EV/revs and 10.1x EV/EBITDA vs 5.7x & 17.5x for peers and implying potential upside on a rerating of >50% for patient investors.

Link to note: https://www.equitydevelopment.co.uk/research/arr-climbs-8-lfl-with-ytd-pbt-in-line-with-ests