ELMO Software Ltd shares race to an all-time high on half-year results release

The ELMO Software Ltd (ASX:ELO) share price has been a big mover during early trade on Tuesday. Here's what you need to know…

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

In morning trade the ELMO Software Ltd (ASX: ELO) share price has climbed 4% to an all-time high of $5.53 following the release of its half-year results.

For the six months ended December 31, ELMO delivered pro forma earnings before interest, tax, depreciation, and amortisation (EBITDA) of $1.2 million on revenues of $10.6 million. This was an impressive 151% and 36% increase, respectively, on the prior corresponding period.

On the bottom line ELMO posted a first-half loss after tax of $571,000 compared to $371,000 in the first-half of FY 2017. This was due largely to higher operating costs, resulting from a 38% increase in sales and marketing expenses and a 63% lift in general and administrative expenses.

But this increased sales and marketing expense appears to have paid off and resulted in strong demand for its human resources and payroll software solutions. This meant that ELMO achieved a pro forma software-as-a-service (SaaS) revenue run rate of $20.8 million at the end of the half, reflecting 97% of its forecast SaaS revenue for FY 2018.

It also means that ELMO has increased its share of the 12,029 organisations in its ANZ target market to 7% thanks to its SaaS revenue growth being over 4x the market growth rate. The total addressable market is believed to be worth US$771 million per annum.

ELMO finished the half with a solid retention rate of 93.1%. While this lags sector peer Pushpay Holdings Ltd (ASX: PPH), it is still a good rate and appears to demonstrate that customers are satisfied with the software.

Speaking of which, customers will soon have another piece of software to use following the acquisition of Pivot Remesys Group – Australia and New Zealand's leading cloud-based remuneration software providers.

During the 2017 calendar year Pivot generated total revenues of $4.5 million with 30% pro-forma EBITDA margins. This was achieved due to its strong recurring SaaS revenues and retention rate of 93%.

According to the release, the initial consideration of $8.8 million will be funded by a mixture of cash and scrip subject to voluntary escrow, with an additional $2.4 million conditional deferred payment should performance targets be met. The cash consideration will be funded from ELMO's existing cash reserves. Management expects it to be earnings per share accretive.

Thanks partly to this deal, management has upgraded its full-year outlook and expects to achieve total revenue of $31.2 million and EBITDA of $5.7 million in FY 2018.

Should you invest?

I think this half-year result demonstrates why ELMO Software is regarded as one of the best small cap tech shares on the local share market.

Whilst it shares are not the bargain buy they were six months ago, I still see a lot of value in them for investors that are prepared to make a patient buy and hold investment.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended ELMOSFTWRE FPO. The Motley Fool Australia owns shares of PUSHPAY FPO NZX. 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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »