Why Hansen Technologies Limited’s share price could head higher in 2019

The Hansen Technologies Limited (ASX: HSN) share price climbed around 1.3% to $3.27 today after the software billing business updated investors at its 2018 AGM held in Doncaster, Victoria.

Its family management team lead by CEO Andrew Hansen told investors that its profit guidance for FY 2019 remained unchanged in that total revenues were expected to be slightly lower due to a lost contract within the US solutions business. However, its recurring revenue is expected to be higher, with expectations that the six-month period ending December 31 2018, will be weaker than the following six month period.

In FY 2018 recurring revenue grew to 65% of total revenue, compared to 63% in FY 2017, with recurring revenue defined as revenue from “maintenance support, dedicated service and income streams that we receive on a recurring periodic basis (monthly, quarterly, or annually)”.

If Hansen can grow its recurring revenue streams over the long term the share price is likely to go higher as well due to the good gross profit margins achieved by the software operator.

In FY 2018 Hansen reported a net profit after tax and amortisation of $38 million on revenue of $238 million, with earnings per share coming in at 19.4 cents.

This means it trades on 17x trailing earnings at $3.27 per share, however it’s the guidance for lower revenues and marginally higher costs in FY 2018 that is keeping a lid in the share price in 2018.

Hansen may be a share worth considering for investors as despite the forecast for a flat FY 2019 its acquisitive and organic growth strategy has seen it deliver a 5-year compound annual revenue growth rate (CAGR) of 28% and a 5-year CAGR in earnings per share of 18%. The acquisitive strategy and earnings growth has  been achieved with only $4 million in net debt as at June 30 2018, which means Hansen is potentially well positioned to deliver good returns into the future.

Other software companies performing well on the ASX include Bravura Solutions Ltd (ASX: BVS) and WiseTech Global Ltd (ASX: WTC).

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Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Bravura Solutions Ltd, Hansen Technologies, and WiseTech Global. 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 Scott Phillips.

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