This ASX tech share has been quietly gaining over the past month. Here’s why I just bought in

I recently added a new name to my portfolio that I think presents a good opportunity.

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Key points

  • There was one ASX tech share that really caught my eye last week
  • I started an investment position in Bailador shares
  • Bailador is invested in a portfolio of technology businesses with good growth potential

I’m always on the hunt for ASX tech shares that look good for the long-term.

I think technology businesses in particular have advantages. For example, the intangible nature of what they offer can come with strong margins. It’s also easier for tech companies to expand because of how easy it is to replicate more software as opposed to what it takes to make and deliver a new car or table.

When ASX tech shares are a good value proposition, I think they are worthwhile pursuing.

With that in mind, I decided to invest in a parcel of shares of a tech business last week.

Bailador Technology Investments Ltd (ASX: BTI)

This is a listed company that invests in technology businesses — and it’s the one I invested in.

Bailador has a portfolio of around 10 names. The names in the portfolio can change over time as it divests some positions and invests in new positions.

It typically invests $5 million or more in businesses that are seeking growth state investment.

There are a few different areas it focuses on including software as a service (SaaS) and other subscription-based internet businesses, online marketplaces, software, e-commerce, high-value data, online education, telecommunication applications, and services.

What businesses is Bailador currently invested in?

These are the current names in the ASX tech share’s holdings: Siteminder Ltd (ASX: SDR), InstantScripts, Rezdy, Access Telehealth, Nosto, Straker Translations Ltd (ASX: STG), Mosh and Brosa.

Let’s take a quick look at what those businesses do.

Siteminder is described as a world leader in hotel management and distribution solutions for online accommodation bookings.

InstantScripts is a digital platform that enables “convenient” access to high-quality doctor care and routine prescription and medication.

Rezdy is described as a fast-growing online channel manager and booking software platform for tours and activities.

Access Telehealth is a specialist telehealth platform connecting Australian communities to high-quality healthcare.

Nosto is described as an AI-powered e-commerce personalisation platform.

Straker Translations is a digital language translation services provider.

Mosh is described as a digital healthcare brand making men’s health and wellness easily accessible through subscription treatment plans.

Finally, Brosa is a vertically integrated furniture brand and online retailer.

Investment strategy

There are a few different things that Bailador looks for.

Typically, the ASX tech share picks companies that:

  • Are run by the founders
  • Have been operating for two to six years
  • Have “proven” business models with attractive unit economics
  • Are demonstrating international revenue generation
  • Have a huge market opportunity
  • Have the ability to generate repeat revenue

When combining those factors, the businesses in question would seem very compelling.

Why I invested in Bailador

One of the key reasons that I decided to go for Bailador is the lower Bailador share price. It’s down materially despite the fact that the underlying businesses are growing nicely.

In 2021, the Bailador portfolio companies produced an average 43% revenue growth yet, since the start of November 2021, Bailador shares have declined 27%. However, the company is up slightly over the last month.

Another reason for the investment was the current valuation. The current Bailador share price is at a 22% discount to the post-tax net tangible assets (NTA) per share. I think that’s an attractive valuation, giving investors like me a margin of safety with the investment.

Also, the underlying value of Bailador’s NTA is not just in unlisted tech shares which could now be worth less after the volatility on share markets.

Bailador can point to a majority asset backing from cash (predominately after selling its stake in Instaclustr) and the listed shares of Siteminder and Straker. The value of those ASX shares and the cash is very easy to see and compare that value to the Bailador share price.

Finally, Bailador’s new dividend policy of 4% of the company’s pre-tax NTA, as well as a FY22 special dividend worth 2% of pre-tax NTA, is attractive to me as it unlocks the value of its assets for shareholders, providing cash returns.

Motley Fool contributor Tristan Harrison has positions in Bailador Technology Investments Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Bailador Technology Investments Limited and SiteMinder Limited. The Motley Fool Australia has recommended Bailador Technology Investments Limited and Straker Translations. 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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