The Objective Corporation Limited (ASX: OCL) share price was a strong performer on Thursday.
The information technology software and services company’s shares stormed 7% higher to end the day at $16.60.
Why did the Objective Corp share price shoot higher?
The catalyst for the strong gain by the Objective Corp share price appears to have been a bullish broker note out of Goldman Sachs.
According to the note, the broker has upgraded the company’s shares to a buy rating with an improved price target of $18.90.
Based on the current Objective Corp share price, this implies potential upside of 14% for investors over the next 12 months even after yesterday’s strong gain.
What did the broker say?
One of the reasons that Goldman is bullish on the company is its Regworks offering, which it believes has a major total addressable market (TAM). Goldman explained:
While more difficult to quantify based on the broad applicability of Objective RegWorks (regulatory compliance software) across public sector use cases, we are attracted to the large potential market opportunity. OCL estimates its RegTech addressable opportunity at A$27bn, based on the administrative burden of regulation. Given the wide reach of regulation across all parts of the economy and layers of government, arguably RegWorks has the largest TAM of any part of OCL’s product suite per our estimates.
In addition, the broker believes that recent weakness in the Objective Corp share price has created an attractive entry point for investors. Particularly given its forecast for an earnings per share compound annual growth rate of 20% between FY 2022 and FY 2025
Since initiating in April, we highlight two key developments driving our more constructive view: (1) a more attractive entry point, with the shares now having de-rated -40% since late 2021; and (2) increased conviction around OCL’s growth outlook as new products scale. We now see OCL’s valuation as attractive compared to SaaS peers after adjusting for its growth outlook and conservative accounting policies (all R&D expensed).