The Altium Ltd (ASX: ALU) share price struggled to make headway in 2020, closing 5.4% lower for the year. On 7 January 2021, however, financial advisory firm Bell Potter upgraded Altium shares from sell to hold. But at the same time, Bell Potter also lowered its Altium share price target from $33.75 to $32.50.
Here's why the broker thinks 2021 could be another flat year for Altium shares.
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Altium overview
Altium develops and sells software and hardware for the design and development of electronic products. The company provides the printed circuit board (PCB) market with three core products. These are Altium Designer, software for designing PCBs, Nexus, a collaborative cloud-enabled PCB design solution, and Octopart, an electronics parts search engine.
Altium is one of the largest providers of PCB design software globally. According to Bell Potter's data, sourced from PCB Market Trends, Altium has an estimated market share of 26%.
Rating upgrade from sell to hold
Bell Potter's investment thesis for Altium is based on the company's switch of its software from being based on-premise to being delivered via the cloud. It sees this switch as a risk that could negatively impact Altium's financial results in the short to medium term, as has occurred for other software companies which made this switch such as Adobe Inc and Autodesk Inc.
Bell Potter's research report also highlights the key to Altium's long-term success as being industry transformation. Altium is attempting to drive this transformation by creating market dominance in its key market of electronic design. This transformation, however, is not guaranteed and is likely to be met with resistance from incumbent operators in areas such as electronics manufacturing and parts supply chains.
Key risks
A number of downside risks for Altium emerged in Bell Potter's research report. These include foreign currency fluctuations in the USD/EUR exchange rate and increased competition. One of the key risks that both Altium and Bell Potter acknowledge is the health of the global economy. Altium targets the global PCB market and the future condition of the global economy will therefore impact the company and its growth. A risk for Altium is a further downturn in one or both of the economies in Europe and the United States, as these two regions combined represent approximately 80% of Altium's sales.
Altium share price target lowered
While there were no changes in Altium's earnings forecasts, Bell Potter decreased its Altium share price target by 4% from $33.75 to $32.50. Bell Potter's reduction was driven by the recent fall in the share prices of most of Altium's listed peers. Bell Potter described its Altium share price target as a modest premium to the current share price, hence upgrading its rating from sell to hold.
At the time of writing, the Altium share price is trading at $31.88, up 0.44% for the day so far.
