Shares in ASX cloud technology company Readytech Holdings Ltd (ASX:RDY) have performed strongly in recent months. Since bottoming out at 96 cents at the end of March, the Readytech share price has rallied more than 100% to $1.98 at the time of writing. That puts it up over 10% this calendar year, despite the volatility and commercial headwinds caused by COVID-19.
The share price has been buoyed by strong FY20 financial results. Revenues jumped 19% year-on-year to $39.3 million, while underlying earnings before interest, tax, depreciation and amortisation expenses were up 21.5% to $15.6 million, and statutory net profit after tax skyrocketed over 360% to $3.9 million. The fact that growth in earnings outpaced top line revenue growth sends a positive signal to investors, proving the scalability of the company’s business model.
So, what does Readytech actually do?
Readytech operates a software-as-a-service (SaaS) business model, targeting the tertiary education and employment sectors. Its flagship product JR Plus helps tertiary education institutions with student acquisition and management. Its client list already includes the University of Queensland, Monash College and Bendigo TAFE, among others.
Readytech’s JR Plus platform also helps large corporations support their staff in their professional development. The software can analyse a company’s workforce and identify where skills shortages exist, and can then support targeted learning programs. Readytech has notched up an impressive client list here as well, including mining giants BHP Group Ltd (ASX:BHP) and Rio Tinto Limited (ASX:RIO).
In addition to JR Plus, Readytech has also developed a suite of software called HR3 that helps small businesses (of up to 10,000 employees) manage their payroll, HR admin and workplace health and safety requirements. Readytech also develops software to assist disability employment services providers manage their clients and deliver better employment outcomes.
Readytech now plans to also enter the government sector through the proposed acquisition of software company Open Office and McGirr. Open Office operates a similar SaaS model to Readytech, but develops case management software for local and state governments, as well as the justice sector.
The proposed acquisition is still to be approved by shareholders, but Readytech has already successfully secured the funding through a $25 million institutional placement. If the acquisition does not go ahead, Readytech plans to use the cash injection to fund other growth opportunities and potential M&A activity.
Should you invest?
Our analysts at Motley certainly think so. Motley Fool’s Hidden Gem service added Readytech to its investment scorecard back in August, when the company’s share price was hovering around $1.52. Our Foolish analysts liked the company’s large potential market opportunity, as well as its high rates of customer and revenue retention.
Since Motley’s recommendation, Readytech’s share price has climbed 30% higher.
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Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Readytech Holdings Ltd. The Motley Fool Australia has recommended Readytech Holdings Ltd. 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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