Altium Limited (ASX: ALU) shares could be volatile today after the group told investors it expects revenue between US$205 million to US$210 million on an EBITDA margin between 37% to 38% over FY 2020.
If achieved at the mid-point of guidance FY 2020 EBITDA will be around US$77 million. That is around 24% higher than the $62.7 million posted in FY 2019 on sales of US$177.2 million at an EBITDA margin of 36.5%.
This kind of organic growth profile is impressive and Altium is sticking to its long-term target of delivering US$500 million in revenue from 100,000 subscribers by 2025.
The group also revealed that over the long term it aims to deliver a combined revenue and profit margin growth rate greater than 50%.
So if profit margins land at 38% then revenue growth should exceed 12%. This 'rule of 50' is apparently a loftier version of the 'rule of 40' that's commonly adopted by other high-growth software companies.
Historically, Altium has a good track record of meeting its forecasts and if it hits US$500 million in revenue by 2025 at an EBITDA margin close to 40% it'll deliver US$200 million in EBITDA.
Moreover, it could retain a strong growth outlook in 2025 given its leverage to demand for the printed circuit boards that are commonly used in the everyday electrical devices of the future.
Blue-chip of tomorrow?
Today it also revealed its partnership with French software giant Dassault Systemes is progressing well and could help entrench Altium's market leadership in the PCB design space.
Dassault Systemes is arguably Europe's best blue-chip tech company that boasts clients like Tesla and Boeing using its software to power their electronics.
Historically, there has been market speculation that the US$38 billion Dassault may launch a takeover bid for Altium due to the synergies between the two.
If it were to materialise any takeover offer would need be at a significant premium to Altium's already lofty share price.
Outlook
Zooming out a little we can see that Altium has a strong future being highly profitable and delivering strong organic growth. The balance sheet is also flush with cash and no debt.
At $35.95 it trades on around 60x FX-adjusted trailing earnings per share of 59.4 cents. This multiple will reduce to around 50x given the forecast growth in FY 2020, but investors can see a lot of growth is priced into the valuation.
Another more junior tech business worth looking at that also boasts blue-chip tech giants as clients is Audinate Group Ltd (ASX: AD8). Its attractive outlook I covered yesterday in an article available online.
