The investing world is littered with fads and keywords — we have all heard of ‘pot stocks’ and how lithium is going to change the world — but one thing that is currently gaining a lot of traction is ‘SaaS’ and ‘Recurring revenue’. Hansen Technologies Limited (ASX: HSN) plays into this thematic.
For educational purposes, I would like to provide a brief overview of both:
- Software as a service (SaaS) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted.
- Recurring revenue is the portion of a company’s revenue that is highly likely to continue in the future. Recurring revenue is revenue that is predictable, stable and can be counted on in the future with a high degree of certainty.
Imagine if you had a company that could do both? That sounds like the nirvana of business models – a growth computer that just has to sit back and collect the cheque each month.
Unfortunately, investor euphoria has led to far too many SaaS stocks appearing on the ASX and these have created a mini-wave of phoenix-like companies looking to capitalise on the SaaS boom.
However, it’s not all gloom and doom for investors looking to gain exposure to technology stocks, companies like Hansen Technology have not only stood the test of time but from a humble beginning grown to become a global player in the billing software market.
Hansen’s recent price fall has created an opportunity for savvy investors looking to purchase a high-quality business on a reasonable valuation.
Here are my top 3 reasons why Hansen should be staple in your portfolio
1. Management skin in the game:
Hansen’s CEO Andrew Hansen took over from his father and has been the CEO for over 16 years and owns approximately 20% of company shares. As an investor, you cannot ask for much more management commitment than having your name on the company letterhead.
2. Defensive Recurring revenue:
As a billing software business Hansen’s revenue is recurring in nature. This frequency ensures a constant stream of income to not only cover costs but to reinvest in R&D. Also, due to the complexity of their software, companies easily become ‘sticky’ and are committed to longer term contracts. At the end of the day all a company wants is for their billing system to work!
3. Market Dominance:
Hansen has grown to become one of the biggest players in its market, this has mainly been driven by R&D investment and strategic acquisitions. One of its recent acquisitions was Nordic based Enoro which delivered better than expected EBITDA margins. This validates my point that Hansen’s acquisition strategy is targeted and strategic.
Is Hansen A Long-Term Winner?
As a long term shareholder of Hansen, I am happy to tick the Dividend Reinvestment box and let the compound interest work its magic.
FREE REPORT: 2 ASX Tech Shares For 2019
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At the time of writing, Anthony owns shares of Hansen Technologies but this could change at any time.