Reporting season can be a great time for investors to get some insights into how businesses have been performing, management's plans and what could happen next. And at the moment, I think that there are a handful of ASX tech shares that look very interesting at their current levels.
Not every technology business is automatically worth owning just because it operates in a certain sector.
However, I do think there are some attractive opportunities in that sector because of how quickly tech businesses can grow thanks to the intangible nature of what they offer customers or clients. ASX tech shares also have the potential to achieve good profit margins because of how cheaply software can be provided.
With that in mind, after seeing their reports, I really like the look of these two names:
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Elmo Software Ltd (ASX: ELO)
This business provides cloud-based solutions for small businesses and mid-market organisations that help them manage people, processes, pay and expenses. It operates in Australia, New Zealand and the UK.
One of the attractive features of its business model is that it operates as a software as a service (SaaS) company, it receives recurring subscription revenue. This is helpful in several ways, including the visibility of cash flow and keeping clients onto its systems.
The FY22 result included plenty of growth. Revenue rose 32% to $91.4 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) went up from $6.5 million to $7.1 million. Annualised recurring revenue (ARR) rose 29% to $108.2 million. ELMO is expecting ARR to grow organically between 24% to 29% to a range of $134 million to $140 million.
It has a high gross profit margin of around 90% and the business seems like it's scalable, meaning that its other profit margins can rise as it gets larger. The ASX tech share is expecting to be cash flow breakeven in FY23.
I think the business has a good opportunity of profitable growth in the coming years, particularly as it grows geographically, adds new modules and improves its margins.
Bailador Technology Investments Ltd (ASX: BTI)
In my opinion, this is one of the most interesting ASX tech shares on the stock exchange.
Bailador describes itself as a growth capital fund focused on the information technology sector. It invests in private tech companies at the 'expansion stage'.
There are a number of characteristics that the Bailador investment team looks for: run by the founders, two to six years in operation, international revenue generation, "huge" market opportunity and the ability to generate repeat revenue.
It wants to have eight to twelve positions in its portfolio. Bailador currently has eight names in the portfolio, those are: Siteminder Ltd (ASX: SDR), Straker Translations Ltd (ASX: STG), InstantScripts, Rezdy, Access Telehealth, Nosto, Mosh and Brosa.
Three of those positions are worth $10 million in the ASX tech share's portfolio.
Siteminder, the biggest investment position in the portfolio, is a "world leader in hotel channel management and distribution solutions for online bookings."
InstantScripts is a "digital platform enabling convenient access to high-quality doctor care and routine prescription medication."
Rezdy is an online channel manager and booking software platform for tours and activities.
After selling its whole stakes in Instaclustr and SMI for around $140 million, it now has a large cash pile. I'm excited by what Bailador might do with this cash, aside from simply paying dividends.
Paul Wilson, the co-founder and managing partner of Bailador, said:
There remain a significant number of very high-quality expansion stage technology companies in Australia. Capital market movements don't change that. The difference is that there is currently less capital chasing those companies, and valuations are more reasonable. This environment gives us the opportunity to get access to those quality companies at reasonable valuations, and we are well positioned to do so.
At 31 July 2022, the Bailador net tangible assets (NTA) per share was $1.94. The Bailador share price is at a 20% discount to this, but share prices are changing all the time.
