Is Hansen Technologies Limited back in the buy zone?

Hansen Technologies Limited (ASX: HSN) provides billing and customer care software solutions to service providers in the energy, pay TV, and telecommunications sectors. It has offices in Australia, the US, New Zealand, China, Argentina and the UK, servicing more than 200 clients across 40+ countries.

A combination of organic growth and strategic acquisitions has seen Hansen become one of the largest software companies listed on the ASX today, with a market capitalisation of over $700 million.

Hansen has compounded its earnings and dividends at around 25% a year over the last decade. Shareholders have enjoyed average annual returns of close to 40% over this time, putting most other listed companies to shame.

Hansen manages to consistently generate a return on equity of above 20% and tripled its earnings over the last 4 years alone.

Despite this, in my view, it has remained among the most overlooked companies on the ASX.

One of the secrets to Hansen’s success has been its low customer churn. Because its software is central to the operations of its customers, once it acquires a customer, it generally keeps them for at least a decade. Ongoing payments from its customers mean that the majority of Hansen’s revenue is recurring in nature.

Hansen reported impressive results for 2016, with improving margins, and net profit after tax up 54.4% on the prior year.

Shares are now trading near $4, a pullback of around 15% from its all-time high hit earlier this year.

Based on 2017 earnings estimates, this represents a P/E ratio of around 28 and a dividend yield of 1.7%.

Estimated organic billing revenue growth of 4%-8% in 2017 is not enough to justify the current multiple. However, Hansen will also benefit from new revenues from the recently acquired PPL Solutions and expects up to 17.5% revenue growth in total.

Hansen also recently announced the acquisition of HiAffinity, a London-based company focused on customer care and billing solutions for the water industry.

Hansen is well managed, has no debt, and plenty of cash in the bank. With the majority of its revenue now foreign sourced, a weaker Australian dollar would prove to be an additional tailwind for Hansen.

In my view, Hansen is likely to continue being a great performer over the next 5-10 years, however, I am happy to be patient and wait for a better entry point before investing.

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Motley Fool contributor Matthew Bugden has no position in any stocks mentioned. The Motley Fool Australia owns shares of Hansen Technologies. 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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