Why the Altium (ASX:ALU) share price rocketed 30% higher in June

It was a great month for the tech share…

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The Altium Limited (ASX: ALU) share price was a very strong performer in June,

In fact, the electronic design software provider’s shares were the best performers on the S&P/ASX 200 Index (ASX: XJO) during the month with a gain of ~30%.

Why did the Altium share price rocket higher in June?

The key catalyst for the rise in the Altium share price in June was the receipt of a takeover approach from Autodesk early in the month.

Autodesk is a US$62 billion US-based multinational software company. It makes software products and services for the architecture, engineering, construction, manufacturing, media, education, and entertainment industries.

The US software giant made a non-binding and unsolicited proposal of $38.50 per share to acquire the company. While this represented a 41.5% premium to its last close price at the time, it was opportunistically still a touch short of its 52-week high.

The Altium response

In response, the Altium Board said that it appreciates the interest expressed by Autodesk, which evolved from a dialogue about a strategic partnership, but that it believes the proposal significantly undervalues Altium’s prospects. In light of this, it rejected the proposal at the current price.

The Altium Board explained: “Altium’s strong track record of setting ambitious long-term goals and achieving them, gives the Altium Board confidence in the Company’s ability to pursue its transformative strategy for the electronics industry and to achieve its 2025 financial goals.”

“Having successfully pivoted to the cloud, Altium is now well positioned to pursue market dominance and industry transformation. The adoption of Altium’s cloud platform is transforming Altium’s business model from maintenance-based subscription to capability-based SaaS subscription,” it added.

Anything else?

Also giving the Altium share price a boost was the release of an update on its short and long term guidance in the middle of the month.

While Altium advised that it may fall a touch short of its FY 2021 revenue guidance of US$190 million to US$195 million, it remains very positive on its longer term prospects.

It has reaffirmed its commitment to grow its revenue to US$500 million in FY 2025. Management expects this to be underpinned by the company’s unique position within the global engineering software industry and track record of strategic execution.

It also notes that due to changes in its sales mix, the majority of this revenue will be recurring in nature by then. It anticipates recurring revenues growing from 60% to 80% of overall revenue by 2025.

Can the Altium share price go even higher?

One broker that still sees value in the Altium share price is Credit Suisse. Last month, the broker put an outperform rating and $42.00 price target on the company’s shares.

Based on the latest Altium share price of $36.69, this implies potential upside of 14.5% over the next 12 months.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Altium. The Motley Fool Australia owns shares of and has recommended Altium. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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