With the latest financials here is the update to my "normalised" PE ratio argument - please read the detail (and check for errors) but I now have a "normalised" PE of 15.4!!
If the management decided to stop investing in 20%+ growth and let things grow organically then PE would immediately improve. Let's look as well at why I think ACX should be in everyone's portfolio and is a ludicrously attractive buy at this price:
1. Visibility on contracted forward revenue for 12 months is maintained at 75%. As more Enterprise clients move towards 100% of their projects on ACX then revenue visibility will improve further. Aconex has a 100% renewal rate for Enterprise clients!
The annual report presentation now has 75% (previously 72%) visibility of contracted revenue (which includes 15-19% growth) which is contracted = defensive stock. Another way of looking at this, using the mid-point of growth forecast, is that $142M in revenue is contracted vs. total revenue for FY17 of $161M = 88% of current year.
2. Near term growth (from presentation) 15% - 19% with medium term maintained at >20% driven mainly by penetration of online document management not reliant on the industry growing = growth stock
3. "Hidden" profitability is [R&D ($31.2M) + Sales&Marketing ($59.2M)] / Sales ($161.2M) = 56.1% Sales. No sane person would take these to zero with the growth profile of Aconex but both these expense lines should be seen as highly manageable.
4. FY17 rev of $161.2M with NPAT of $5.0M + 75% of "hidden" profitability (which really is going towards growth & market domination) = $5.0M + ($161.2M x 56.1% x 75% x 70%tax effected) = $52.5M
5. Therefore current PE without deploying growth capital = $809M mkt cap / $52.5M "normalised" NPAT = PE of 15.41
6. Aconex has been able to do all of this with zero debt - if they want to raise debt it would be both easy and cheap as their cashflow visibility is almost unparalleled. They do not need to do it as they still have $33.9M in cash.
As always, just my opinion DYOR of course but I got in on the IPO, topped up with the issue at $5.20 and have (still) not sold a share as I have a (very) long-term view.
Mo
ACX Price at posting:
$3.94 Sentiment: Buy Disclosure: Held
