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Why the Hansen Technologies Limited share price plunged today

The Hansen Technologies Limited (ASX: HSN) share price dived 9% to $3.70 after the release of its half-year report today, after falling as much as 12% in early trade. Here’s what you need to know:

  • Revenue rose 18% to $87 million
  • Underlying revenue grew 5% excluding acquisitions and on a constant-currency basis
  • Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) rose 7% to $24 million
  • Net Profit After Tax rose 7% to $13.5 million
  • Earnings Per Share rose 6% to 7.5 cents per share
  • Dividends of 3 cents per share, up from 2.5 cents previously
  • Development expenditure (R&D investment) increased to ~4% of revenue (~2.5% previously)
  • On track to achieve full year guidance of revenues between $165 million and $175 million and EBITDA margin between 25% and 30%

So What?

The acquisition of the Solutions business in the USA contributed its first full 6 months to earnings and lowered Hansen’s average EBITDA margin, in line with previous forecasts. Currency movements were a hefty headwind, although management gets bonus points for not once mentioning the word ‘Brexit’, despite a sharply lower GBP adding a $4.4 million headwind to the results.

In the accompanying presentation, management gives a good overview of its future growth drivers, including digitisation and pay television in emerging markets, as well as ‘service convergence’ (multiple services from a single provider) and increasing bill complexity. Changes to the Japanese and Australian electricity markets are also expected to create an opportunity.

Long term, Hansen outlines its approach to growth like this:

 

Source: Company presentation

Source: Company presentation

With the increase in Research and Development (R&D) and recent acquisitions, Hansen is following its own advice and shareholders should reap the rewards over time.

Now What?

A respectable result for Hansen but clearly not what the market was expecting. At around 26 times estimated full-year earnings, Hansen shares are seemingly priced for more than 7% profit growth per annum.

Management should be able to boost growth along the way via acquisitions, and Hansen surely deserves points for its international revenue streams, with more than 75% of revenues coming in currencies other than Australian dollars. The company also maintains a decent balance sheet with modest cash and no debt. I wouldn’t bet against the company, but the market’s reaction today is a reminder not to overpay.

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Motley Fool contributor Sean O'Neill 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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