Ask A Fund Manager
The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Cyan Investment Management portfolio manager Dean Fergie nominates a bargain ASX share that he’d buy and put away for four years.
The ASX share for a comfortable night’s sleep
The Motley Fool: If the market closed tomorrow for four years, which stock would you want to hold?
Dean Fergie: I think at the current levels, I think Alcidion Group Ltd (ASX: ALC), which is a hospital software business, has got some very strong commercialised products.
They’re rolling their software out globally to government and private-backed defensive industries. It’s well-capitalised, growing strongly, we think incredibly undervalued, and in three or four years’ time will be a lot more valuable than it is today.
MF: It’s derated a fair bit this year, hasn’t it? The share price has almost halved.
DF: Yeah. It really has, surprisingly. You look at comparison stocks like Pro Medicus Limited (ASX: PME), it hasn’t been hit nearly as hard. Alcidion’s off probably close to 75% off its highs, but we don’t really understand it because they’ve won a number of contracts recently.
We feel like they’re doing all the right things. Their revenue’s increasing. It’s becoming a serious business. They’ll do sort of $35 million in revenue this year, a lot of which is recurring. And we think paying a bit over $100 million in enterprise value for a business like that is great value.
MF: Is it out of favour because it’s not a profit maker yet?
DF: Look, I mean, it’s not horrendously unprofitable. It’s running very close to break-even. So, that’s reassuring.
If it was running at a big loss, we wouldn’t be invested. I think maybe the issue with Alcidion has been just a little bit market-related. But they raised quite a bit of money to buy another competitor in the UK at the end of last year [via] a 25% raising. And they raised a lot of money.
Then the market turned a little bit, and I think just a lot of stock came out. And the new investors that had bought in at 25 [cents] and saw it trading at 22, 19, and 18 just, at the end of the financial year, went, “Stuff it. I’m going to take my losses and move on.”
So from what we’ve seen, if you click on Alcidion and the reports they’ve released in the last few months, they’re all very positive. There’s about six announcements of them winning new contracts or extending existing contracts. So we’re a little bit confused as to why it’s not moving up in share price.
But that’s the market, so that’s what we have to deal with.