The Altium Limited (ASX: ALU) share price looks like an attractive long-term ASX growth share opportunity in my opinion, at a price under $30.
Altium is a leading player in the electronics design space. It offers electronic PCB design software, as well as other services including Octopart, a search engine for electronic parts and components.
The ASX tech share has experienced much volatility, just like others on the market. At the time of writing, the Altium share price shows a drop of around 35% in 2022 so far.
Indeed, Altium shares have fallen much further than the S&P/ASX 200 Index (ASX: XJO) in 2022. The index has dropped by 13% in the year to date.
But I think this period of underperformance is a good time to look at Altium for a number of reasons:
Leading the industry transition
In a sector like technology, I think it's important for a company to regularly evolve so that competitors don't get ahead.
Altium 365 is a key part of the company's plan to drive change in the sector. Altium 365 is described as the world's first digital platform for the design and realisation of electronics. It's also seeing strong adoption amid the increasingly technological nature of the world we live in.
In the FY22 half-year result, Altium said that it finished with 9,918 seats on a cloud subscription — that was up 40%. Altium also boasts a 97% renewal rate on the cloud.
According to the company, its competitors have rushed announcements about their own cloud services. Altium believes it has a two or three-year head start on them.
The ASX growth share has described the shift to Altium 365 as a "Netflix moment". It used the analogy to describe a "hard pivot" to the cloud. [It's worth noting that before streaming services, Netflix specialised in a DVD mailing service.]
The Altium 365 platform, combined with Nexar, will enable design, manufacturing, and supply chain domains to unite. It means that partners and third parties will be able to digitally connect to Altium 365 and deliver their value propositions directly to users and customers.
Altium said:
Combined, Altium and Nexar will deliver fundamental change to the way that people collaborate and do business together, creating value in such a way that Altium 365 will not only support the practice of engineering, but will be a platform for the business of engineering too.
Opening up growth potential
Altimade is one of the services that Altium has launched recently.
Management noted that Altium 365 "provides unique opportunities for direct monetisation". It can offer premium services (for example, like Amazon Prime) and transaction fees on manufacturing (like Airbnb's business model).
Combined with Altium 365 and Nexar, Altimade will incorporate the delivery of a design to realisation experience "that has never been seen before in electronics", according to the company.
Altimade will provide cloud-based 'smart manufacturing' that will "improve productivity and manufacturability of electronics hardware and manage the supply chain of components as well as production risk".
I think this is a great move because it expands Altium's total addressable market while also embedding itself further with its customers. This makes it even more valuable to the electronics sector.
Strong financials
In my opinion, Altium has a strong set of financials that puts it in a good position to get through this difficult period.
At the end of the FY22 first half, it had no debt with US$195 million of cash.
In the first six months of FY22, it grew continuing revenue by 27.8% to US$102 million. This helped earnings before interest, tax, depreciation and amortisation (EBITDA) grow by 28.9% to US$34.8 million, while net profit after tax (NPAT) surged 37.7% to US$22.9 million. This demonstrated the strengthening operating leverage of the business.
The company is a cash flow machine. Free cash flow rose by 95% in that HY22 result to US$32.8 million.
Altium's underlying EBITDA margin improved from 30.6% to 34.1% It's also expected to be able to rise to between 38% to 40% over the next few years.
I think that growing revenue and improving margins will lead to growing free cash flow and rising dividends, helping shareholder returns.
