Aconex Puts Early Runs On The Board

-Project wins globally
-Capacity for acquisitions
-Market share gains likely

By Eva Brocklehurst

 Aconex ((ACX)) hit the boards on ASX late in 2014 and has impressed brokers by reaching earnings break-even six months ahead of prospectus forecasts.

The software-as-a-service company won key contracts in its maiden first half with North West Rail Link and the Wheatstone LNG project. Aconex has also delivered on projects across the construction industry in diverse areas such as health & education, mining and residential & commercial building. Its subscription model provides highly visible recurring revenue. International revenue is also gaining scale and should become a key driver of longer term earnings growth, in Macquarie’s view.

Meanwhile, Australian operations are providing strong contributions and margins. UBS suggests achieving 63% market share in Australia provides tangible evidence of the company’s ability to successfully penetrate and dominate a regional market. From a product, sales and services perspective UBS believes Aconex is well positioned to garner market share globally.

The company has the financial capacity for acquisitions in what is a highly fragmented market, in Macquarie’s opinion, and as the Americas become more significant in proportion a weakening Australian dollar should assist. In this region the company won key contracts with New Mexico International Airport and the Silver State Solar Park as well as an enterprise agreement with with Metro De Santiago. Recent Asian projects wins included Lakhta Centre Russia and in oil & gas in Singapore. Europe/Middle East provided key project success with Qatar Rail and an enterprise agreement with Westfield Corp ((WFD)).

Macquarie believes the company has reached a point where it has the scale necessary to expand margins and grow earnings, with significant upside if it continues to deliver on growth forecasts. A key feature of the company’s enterprise-wide contracts is reflected in renewal rates. Over the past three years renewals for projects have run at 87% and for enterprise contracts at 90%.

The broker believes operations are on track to reach the next target – a net profit. Macquarie retains a target price of $2.30 and an Outperform rating. UBS also believes reaching profitability ahead of forecasts could present a tipping point for the share price, as the market begins to price in higher levels of profitability based on tangible results. UBS values Aconex using discounted cash flow and peer multiples and retains a $2.53 price target and Buy rating. The broker’s high case estimates generate a DCF valuation of $4.83 which would lift its target to $3.45.

Aconex was founded in 2000 and provides a cloud collaboration platform for the construction industry, centralising document & data management and communications for project participants. The company estimates its global market share at 22.4%. First half results revealed earnings at the EBITDA line of $500,000 against prospectus estimates of a $1.4m loss. At the end of 2014 the company had 95% of its FY15 forecast revenue under contract. Aconex operates in over 25 countries.
 

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