@thunderhead1
Overall the result was good not great. From a business perspective I think Saurabh is doing a great job and the company is very adequately capitalised now. I have, on the other hand, been selling, because I am overexposed to the cloud technology sector and I have recently had an asset allocation problem (too much equities due to appreciation- my current portfolio even after recent losses and taking out a fair bit of cash over the years is many multiples of what it was just 4-5 years ago) and that the growth rates here do not excite me in comparison to my other holdings.* That being said, I think returns here will still be quite good moving forward and that the business is undervalued.
Stripping out the implementation fees related to PICA in the pcp we can see strata is growing at about 15%pa and and facilities only about 60% off a larger base. This is a greater rate of growth decay that I originally estimated, and moving forward I see growth in the vicinity of 30-40%pa over the near term. Assuming gross margins at maturity of >80%, achieving scale, I would value this business in the vicinity of 70m. If I didn't have a problem with asset allocation I would not have sold.
*My decision making here is probabilistic and based upon taxation considerations- by my reckoning I would value XRO right now at between 6-9B (ie 25-50% off recent highs, as opposed to UBN being higher than its current market cap), however, I haven't sold a single share in Xero. I have high confidence that XRO will be doing 8B+ in revenue with FCF in the order of 3B in a decade, which on conservative multiples would give me a 20% compound return on my invested capital. I know that XRO has pricing power (they raised prices-didn't have churn), have a product that has manifestly succeeded, that the competitive environment is benign after a wave of sector consolidation and that regulatory tailwinds to aid tax collection at the governmental level makes my above scenario a high probability having followed the stock very closely for however many years I have now held. I do not have the same level of conviction in UBN, and moreover, fixing my asset allocation problem actually realises less gain (albeit without the discount) than selling my other stocks. My concerns with UBN are that whilst there is less threat from strata it is growing slowly and whilst facilities appears to be a solid contender for best in class software, it is a more competitive landscape. I am not 100% sure this decision making process is sound, but it is what it is. I have similarly sold down SKF into strength for the same reasons.
