The Objective Corporation (ASX: OCL) share price is going bananas, it’s up 7% this morning after it released a trading update about FY20.
What is Objective Corporation?
Objective Corporation Ltd is a Sydney-based Australian data and information software company that services Government and the public sector, as well as other large organisations. With over 1,000 customers, each year Objective Corp claims to retain 99% of its customers and invest around 20% of its revenue back into Research & Development.
FY20 trading update
The company announced its unaudited management accounts for FY20. So it has essentially released its expected FY20 result.
Objective Corporation’s revenue rose by 13% to $70 million with annual recurring revenue growing by 21% to $56.6 million. Recurring revenue now represents 75% of total revenue.
Looking at the some of the key subscription product lines, ECMaaS revenue jumped by 101%, Connect revenue rose 34%, Trapeze revenue increased by 51% and Alpha One revenue went up 49%.
Objective’s EBITDA (click here to learn what EBITDA means) rose by 22% to $17.2 million. Net profit after tax (NPAT) also grew by 22%, to $11 million. Operating cash flow increased by 22% to $28.5 million.
In terms of its research and development spending, that grew by 18% to $15.7 million. These expenses are fully expensed when incurred, they are no capitalised.
Balance sheet
Objective Corporation said it finished FY20 with a cash balance of $51 million. However, 1 July 2020 Objective acquired government regulation technology specialist iTree for a net cash cost of $18.5 million with no deferred consideration payments.
Objective CEO Tony Walls said: “The foundation of predictable, high-quality revenue streams has facilitated growth in two strategic imperatives; it has enabled us to continue to invest in innovation across our product portfolio and it has funded the acquisition of complementary market-leading software developed by Master Business Systems and iTree. We are extremely pleased to be able to offer our customers a broad suite of outstanding solutions that support the flexible working arrangements required for the continued delivery of critical services to the community from any device and from any location.”
FY21 Outlook
In FY21 the company is expecting a “material” uplift in revenue and profitability. Objective plans to extend its market reach with increased global marketing and broadening the offer to every customer.
Objective is going to keep looking for acquisitions where it would add strategically aligned products for a reasonable acquisition valuation.
I think Objective Corporation could be one to watch. Growing profit margins and a high retention rate is an attractive combination for investors. But it’s priced highly – the price/earnings ratio is getting closer to 100 – so you’d need to invest with a long term horizon.
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