Shares in software company Objective Corporation (ASX: OCL) shares have had a spectacular run recently, up nearly 40% in the last six months.
Objective Corp has a suite of products that streamline efficiencies across bureaucratic activities. Its core segment is content solutions, which includes Objective ECM (Enterprise Content Management), Objective Inform, and Objective Perform.
For businesses to run smoothly, various departments need to be able to “speak” to each other. If you’ve filled out government forms or a visa application, you’d know how long these processes can be drawn out. Objective Corp’s product offering aims to solve issues such as these.
FY21 results
Across FY21, Objective Corp reported revenue of $95 million, up 36% on the prior corresponding period (pcp). $74 million is on a recurring annual basis.
More operating leverage was unlocked which saw EBITDA grow just under 50% to $26 million. Net profit after tax (NPAT) jumped 45% to $16 million.
It finished FY21 with a strong balance sheet with $48 million in cash and no debt.
FY22 and beyond
Management thinks that a variety of factors will continue to drive demand for its products.
In the Reg Tech (Regulation technology) space, most industries have seen increasing levels of regulation that require mission-critical solutions. You might be surprised to know that so many businesses still use paper and other manual processes that are slow and are prone to human error.
Management reckons there’s still a large digital transformation occurring with a largely untapped addressable market.
Is it time to buy shares?
Objective Corp ticks a lot of boxes for a high-quality investment. High levels of recurring revenue, a compelling product offering, and structural tailwinds are just a few that come to mind.
I would however be slightly cautious regarding its valuation at these levels. With a market cap of $1.75 billion, its shares are now trading on just under 23x its annual recurring revenue – not exactly bargain territory.
https://education.rask.com.au/2020/01/09/the-purpose-of-business-stock-market-valuation/
Without digging deeper into its valuation using other methods such as a discounted cash flow model, I’d be holding for the moment, but it’s on my watchlist nonetheless.
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