The Altium Limited (ASX: ALU) share price is holding steady on Wednesday despite a broker claiming the electronic printed circuit board (PCB) software business could benefit from a global shortage of chips.
The broker Morgan Stanley believes the market may not be correctly judging how Altium is benefiting from the supply chain problems with chips, according to reporting in The Australian.
It was noted that other stakeholders in the tech supply chain, such as semiconductor businesses and tech hardware businesses are suffering from the chip shortage.
Why could the Altium share price benefit?
Morgan Stanley did some checking to confirm there is still good demand for Altium's services. Altium's software is reportedly being used to help work through the supply tightness.
Morgan Stanley's Andrew McLeod said that a key takeaway from the broker's San Francisco TMT (technology, media and telecom) conference was that "ongoing sporadic semis shortages continue to cause disruption, with most companies seeing the supply/demand imbalance to now persist into 2023".
The broker pointed out the market seems to think Altium could suffer from supply chain problems. But, on the contrary, Morgan Stanley points out some positives.
It said Altium is actually experiencing more demand with PCB designers attracting additional workflow as they are tasked with re-purposing chips for different functions.
The broker also noted that Altium's Octopart division – an electrical parts search engine – continues to see "strong demand" as designers look for parts in the shortage.
The final point that Morgan Stanley noted as a positive was the rapid uptake of Altium 365, which is the company's cloud platform. It's seeing strong demand.
On Altium 365, McLeod said (as reported by The Australian):
We keenly await detail on the monetisation strategy of 365, but as the leading cloud product, the strength of first-half results seems likely to continue.
Is the ASX tech share an opportunity?
Morgan Stanley certainly seems to think so. The broker has an 'overweight' rating on the ASX tech share, inferring it thinks the Altium share price is a buy.
The broker's price target on Altium is $35. That implies a possible upside of around 20% over the next year.
Using Morgan Stanley's earnings projections for Altium, it's suggested Altium shares are valued at 55 times FY22's estimated earnings. The broker then expects profit growth in FY23 for Altium. The Altium share price is valued at 44 times FY23's estimated earnings.
The broker is also expecting Altium to grow its dividend in FY23, implying that the Altium dividend yield could be 1.8% in the next financial year.
Altium share price snapshot
Altium shares are currently down by less than 1% at $28.53 apiece in afternoon trade.
The company has a market capitalisation of around $2.2 billion.
