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Should you buy Hansen Technologies?

Hansen Technologies (ASX: HSN) sells software-based solutions for billing, customer management, and data management. Clients include electricity utilities, telecommunications companies, superannuation trustees and pay-tv companies.

Most of Hansen’s revenues come from critical billing functions. This means that Hansen’s services are stickier than other software solutions because businesses tend towards have the attitude of “if it ain’t broke, don’t fix it” when it comes to billing systems. It’s difficult to imagine a CEO willingly disrupting a company’s revenue collection process.

Since 2008, Hansen has maintained return on equity of over 15% and is comparable to Integrated Research (ASX: IRI) in several respects. Both tech companies have experienced lumpy growth, both have strong cash flow year after year and the founders (or their family) have remained major shareholders.

Hansen was founded by Ken Hansen in 1970, and he remained on the board until 2012, when, sadly, he passed away. His achievements in building the company were considerable. His son, Andrew Hansen, has been CEO since 2000, and it’s fair to say he has proved himself to be good at growing the business. Aside from having a financial interest as a major shareholder, Andrew Hansen is part of the history of the company.

Indeed, Hansen Technologies is a company I have underestimated in the past. Since 2011, the company has been attempting to grow by investing in sales and marketing as well as by acquisition. In the first half of 2013, growth was not yet apparent. At that time, I was a little worried by the fact that that Hansen family company (Othonna Ltd) sold 21,000,000 shares. It’s debatable how important that is, as Othonna still owns 44% of Hansen.

Hansen’s most recent results show that the second half of 2013 was considerably better than the first. What’s more, the company gets full marks for proper disclosure of expectations. Time and time again, results have been approximately as predicted.

In the latest report, Andrew Hansen said that the company “will be stepping up our investment in pursuit of organic growth.” While this investment may be a drag on profit in the short term, I think that the CEO has shown sound judgement when it comes to allocating capital.

Indeed, asides from the fact that the most recent acquisitions, Utilisoft and Irdeto Customer Central, seem to be integrating well, they were funded out of the company’s Australian cash reserves at a time when the Australian dollar was much stronger than today. The kicker is that Irdeto, in particular, brings in significant foreign currency revenue streams. Hansen is debt-free and also pays dividends. It is likely to pay investors a partially franked yield of about 5.4%, at current prices.

Foolish takeaway

In my opinion Hansen fulfills two of the three criteria in Warren Buffett’s three-point investing formula. The company boasts honest and competent management, and strong economics. As for price, at $1.10 the market is probably pricing in a little more growth than I am comfortable with, but Hansen remains firmly on my radar as a potential investment.

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Motley Fool contributor Claude Walker has an indirect interest in Hansen Technologies through a managed fund. Find him on Twitter @claudedwalker.

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