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ALU - ALTIUM LIMITED


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ALU gets a mention here - https://www.theage.com.au/business/companie...808-p52f3d.html

extract

Another tech darling Altium, which plans to dominate the rather obscure but lucrative world of design software for printed circuit boards, is worth a billion dollars more than JB Hi-Fi.

 

That is despite Altium reporting a profit roughly one-seventh that of JB Hi-Fi's $234 million.

 

The long term price to earnings ratio for S&P 500 shares is around the 15 mark. Which means that investors have generally been willing to pay $15 on the share price of a company for every dollar of profit.

 

Atlassian, the Nasdaq-listed software group founded by tech billionaires Mike Cannon-Brookes and Scott Farquhar, reported in July that its revenue had finally exceeded $US1 billion for the financial year just ended.

 

The company is valued at $US33 billion after the recent share price fall. It means investors are paying $33 for every dollar of revenue it generates.

 

Total short positions as at 5/8/19 = 0.43%

https://www.shortman.com.au/stock?q=alu

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Goldman Sachs has initiated coverage on Altium with a 'neutral' rating, saying while it was a market leader with a long runway for growth, it already looked fairly valued. The broker noted the company's transition from a maker of software for the design of printed circuit boards (PCBs) to an integrated platform for managing the design, procurement and manufacturing of PCBs.

 

GS said Altium's market position, growth outlook, strong returns and net cash position were key strengths but added it needed to exceed its current forecasts to outperform the market due to the fact consensus expectations appeared to be relatively in-line with those forecasts.

 

"The launch of Altium 365 (November 2019), its success in China and potential M&A will be important future drivers of earnings expectations, but at this stage we do not believe the trajectory is likely to materially deviate from our forecasts," said analyst Ashwini Chandra. "Execution against these key drivers will be important for our future earnings projections."

 

The broker said it was attracted to the market position and medium-to-long term outlook for Altium, but believed its price already reflected a fair valuation.

- but will they disappoint?

 

And, as reported elsewhere, is there really a

US$2-trillion market for on-demand electronic design and manufacturing, produced via 3-D printing.
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The scrambling of software player Altium to meet its FY20 revenue target of US$200 million ($286 million), through heavy discounting of its popular products, is starting to make a little more sense. The market darling unnerved analysts when it discounted product prices across the board in a mad rush to meet targets.

 

Some of the eagerness to hit revenue goals is explainable by the short term incentive structure. It pays cash bonuses to a large amount of employees as long as they meet the benchmarks.

 

According to the latest annual report, 70 per cent of annual cash bonuses are paid for the achievement of group revenue targets, with 30 per cent paid for the achievement of EBITDA margin targets. As Charlie Munger once said, show me the incentive and I'll show you the outcome".

 

Alas, on Tuesday, Altium reported that its full-year revenue number landed at $US189 million, a little short of its $US200 million target. It did not bother to disclose the EBITDA margin, so staff may have to sweat a little longer on the contents of their bonus letters. Management at Altium tell staff the bonus plan and long-term objective to grow revenue and EBITDA margins are part of its "Line & Length" strategy.

 

Sounds worth avoiding

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Matthew Kidman (Livewire Markets) : The real nuff nuff. Circuit boards for technicians, Altium. Buy, hold or sell?

Catherine Allfrey (WaveStone Capital): It is a sell for us. They delivered 10 per cent revenue growth last year, and they're forecasting 6 to 12 per cent this year in terms of guidance. And they put out this long term forecast, which the market has lapped up and has just absolutely priced that. So at $40 for our view, it is just too expensive. And we think there could be some interruptions on the way to that five year revenue target. It is not easy to get to that level as they are in a bit of a transition. And so for us, it's a sell.ote]

 

Matthew Kidman: They have put out a number of bad announcements recently compared to the market, but the market loves international niche players. Altium, buy, hold, or sell?

Jason Kururangi (Aberdeen Standard): It is a buy for us. Look, we take a three year view when we are looking at these stocks. And when we look at Altium, it's a really high quality product. It has got a large addressable market that they are growing into, and there is a transition going on where we expect significant value to be created for us as shareholders. If you look offshore where you have seen transitions to Software as a Service models, they can be very successful. There will be wobbles along the way. And we do not doubt that there could be a bit of a wobble, but we believe in the longterm story and that it will generate significant value for us as shareholders.
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Altium said it has received a formal, non binding, indicative and unsolicited proposal from Autodesk at $38.50 a share for the acquisition of 100 per cent of Altium via a scheme of arrangement.

 

The Altium board appreciates the interest expressed by Autodesk, which has evolved from a dialogue about a strategic partnership. However, it considers that the proposal significantly undervalues Altium's prospects and therefore rejects the proposal at the current price.

Altium said it has a unique position in the electronics ecosystem and unsolicited acquisition interest has developed in the past from partnership dialogues with others in the ecosystem.

 

As consistent with past unsolicited acquisition interest, the Altium board will engage with interested parties in the context of an appropriate valuation of Altium and it will continue to review all potential strategic alternatives for the company, it said.

 

 

... up 36% to $37; another offer looming ??

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