The Class Ltd (ASX: CL1) share price is up more than 20% after reporting its FY20 result to the market and announcing an acquisition.
Class is the provider of accounting software for SMSFs and non-SMSF portfolios.
Class FY20 result
Class announced that its revenue increased by 15% to $44.1 million. Annualised recurring revenue grew by 22% to $46.8 million.
EBITDA (click here to learn what EBITDA means) increased by 1% to $18.2 million. The underlying EBITDA margin was 42%, which exceeded management’s target.
Class’ operating cashflow grew by 35% to $17.4 million. Some investors prefer to look at cashflow over any other investor metric. It generated free cashflow of $9.8 million.
Due to higher depreciation and amortisation charges, net profit before tax dropped 19% to $10.1 million and net profit fell 24% to $6.8 million.
Class declared a final dividend of 2.5 cents, bringing the full year dividend to 5 cents per share. That was the same as last year.
Acquisition(s)
Class recently completed the acquisition of NowInfinity, which is a documentation platform. The integration is ahead and schedule and it’s functioning with the Class product suite. More than 25,000 entities have transitioned to NowInfinity and there are 500,000 entities on the platform
Today Class announced the acquisition of Smartcorp for $4.2 million. It was Australia’s first online company ordering and ASIC compliance system. Smartcorp services over 1,500 businesses, mostly accountants (including two of the ‘Big 4′).
The acquisition will help grow Class’ footprint in the document and corporate compliance market. Class will have a market share of around 10% of revenue after completing its acquisitions. The acquisitions have increased its total addressable market significantly.
Outlook
In FY21 it’s aiming for revenue of $53 million, which would be up 20% on FY20. It’s also aiming for an underlying EBITDA margin of more than 40%. Class Trust will launch ahead of schedule in October 2020.
There were lots of positives in this update, I can see why investors pushed the Class share price up so much. I’m not sure how much the company will be able to grow beyond FY21, so today’s rise has probably made it hard to make a strong return in the shorter term. There are other tech ASX growth shares I’d prefer to go for first like Pushpay Holdings Ltd (ASX: PPH).
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