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3 hot software stocks to start crushing the market

is it a buy

Software has become an integral part of our daily lives, whether we see it or not. Almost every business relies on software services in one way or another.

The following software businesses are three of the most exciting options on the ASX in my opinion:

Hansen Technologies Limited (ASX: HSN)

Hansen has a market capitalisation of $616 million, making it one of the top 300 businesses on the ASX.

It provides business customers with billing and service software in a variety of different industries including telecommunications, cable TV and utilities. Most of the revenue that Hansen generates is recurring, making it quite reliable.

Hansen has managed to integrate all of its acquisitions well so far, it could continue growing nicely through further acquisitions and organic growth. It now has around 200 customers operating in 45 countries, which shows how globalised Hansen has become.

Hansen is currently trading at 23.5x FY16’s earnings with a trailing grossed-up dividend yield of 2.95%.

Gentrack Group Ltd (ASX:GTK)

Gentrack is essentially a competitor to Hansen. It provides a billing and software service to businesses in the utilities, telecommunications and airport industries. It has also been growing nicely through acquisitions including its recent announcement of buying Junifer in the UK and two other acquisitions.

Its customers, before the latest acquisitions, included 53 utility sites and 73 airports primarily in Australia, New Zealand and the UK.

Gentrack is trading at 31.5x FY16’s earnings with an unfranked dividend yield of 2.76%.

Link Administration Holdings Ltd (ASX: LNK)

Link is one of the biggest software companies on the ASX with a market capitalisation of $2.7 billion.

It offers a variety of services, its main two are shareholder services and superannuation fund software. It has some of the biggest superannuation funds as customers including AustralianSuper, Hostplus and REST.

The nature of these services means that its customer base is very sticky. However, it would be a sizeable hit if one of the funds left to a competitor or took the work in-house.

Link is trading at 60x FY16’s earnings with an unfranked dividend yield of 1.84%.

Foolish takeaway

At the current prices it’s not easy to pick a favourite between them, I think all three would be good long-term options for a Foolish investor. However, if I were to pick I would choose Gentrack because of the airport segment to its business and its acquisitive nature.

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Motley Fool contributor Tristan Harrison 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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