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Up 25% in 2017, is the Gentrack Group Ltd share price a buy?

The Gentrack Group Ltd (ASX: GTK) share price has grown by 25% since the start of 2017, can it keep growing?

Gentrack is a billing and software provider for a number of different organisations around the globe.

I think the business could keep growing well for the following reasons:

Defensive and sticky customers

Gentrack’s software is provided to many different businesses around the world including airports, utility companies and telecommunications.

Some of its customers include Origin Energy Ltd (ASX: ORG), AGL Energy Limited (ASX: AGL), Sydney Airport Holdings Ltd (ASX: SYD) and Auckland International Airport Ltd (ASX: AIA).

All of the businesses it services are quite defensive, meaning Gentrack shouldn’t have much trouble with its customers even in downtimes.

The nature of software and billing mean that it’s an integral part of the customer’s business. It also means that they have put significant training hours into that system and it would cost a lot more to change to a competitor. Gentrack would have to make a serious mistake or be excessively expensive to lose a customer.

Gentrack can focus on improving the offering and acquiring new customers with a solid and reliable customer base behind them.

Acquisitions

Gentrack has been very active this year, adding bolt-on parts to its business.

At the end of March, Gentrack announced that it was acquiring a business called Junifer Systems for NZ$74.6 million. Junifer provides billing and other software to half of the 50 energy retailers in the UK market. The tie-up will mean Gentrack can take its combined business into other geographical areas.

Management estimate that if Gentrack had owned Junifer for the whole of FY17, it would have added 10% to the earnings per share (EPS).

Gentrack then announced near the end of April that it had acquired Blip Systems A/S and will acquire CA Plus Ltd. Management expect these acquisitions to contribute to doubling its airport segment earnings before interest, tax, depreciation and amortisation (EBITDA) over the next few years. These two acquisitions further add to the offering that Gentrack can provide to its airport customers.

Solid financials

Even before the above acquisitions, management were estimating long-term growth of revenue and EBITDA of around 10% per year.

With little debt on the balance sheet and a strong cash position it looks as though Gentrack is well placed to fund its growth and navigate any difficulty in the future.

Foolish takeaway

Gentrack is currently trading at 36x FY16’s earnings with an unfranked dividend yield of 2.63%.

I think this price could be a good one for long-term investors looking for growth and defensive qualities.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Sydney Airport Holdings Limited. Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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