Hansen Technologies: Focus On FY26

Small Caps | Feb 26 2024


A disappointing update on recently acquired powercloud does not ruin the investment case for Hansen Technologies, analysts say.

-Hansen Technologies' core business is performing well, but…
-the recent powercloud acquisition is loss-making and requires additional investments
-Analysts remain positive, pointing at Hansen’s strong track record of successfully integrating acquisitions

By Nicki Bourlioufas

Latest acquisition leads to disappointment

While Hansen Technologies’s ((HSN)) recently acquired German software platform powercloud will act as a drag on near-term earnings, analysts remain upbeat on the longer-term outlook, expecting an earnings boost from FY26.

Hansen, a global provider of software and services to the energy, water and communications industries, recently completed its acquisition of powercloud, which provides billing and customer management software products, including to many of Germany largest utility retailers.

The acquisition expands Hansen’s business in key target markets, Germany and the broader 'DACH' region of Germany, Austria and Switzerland. Great news so far, were it not for Hansen management's admission the new acquisition is loss-making, and will therefore weigh on the company's growth momentum, plus additional investments in the business are required.

Hansen’s first-half earnings before interest, taxes, depreciation, and amortisation (EBITDA) rose 15.8% to of $52.1m, while reported net profit after tax (NPAT) of $17.6m was up 9.4% on the previous calendar period (pcp). The EBITDA margin of 31.1% rose from 30.2% in the pcp, sitting at the top end of the company's long-term 25% to 30% range, despite increased pressure from costs because of continued input inflation.

Analysts look past near-term disappointment

Near term, UBS estimates Hansen’s earnings per share (EPS) and free cash flow (FCF) will fall -18% and – 16% in FY24, respectively, and -15% and -36% in FY25. But the broker expects the acquisition will boost earnings from FY26 onwards. For FY26 to FY28, UBS forecasts EPS will increase 5% to 16% and FCF will improve 8% to 15%.

UBS has a Buy rating on the stock and a 12-month target of $6.50, downgraded from $6.75. “Hansen is continuing to deliver to a higher level of organic revenue growth & cash flow generation, supporting our investment case,” the investment bank wrote in a research note.

powercloud is a market leading product that should benefit from the significant utility software upgrades resulting from the German government-mandated smart meter rollout. The powercloud business, though not yet profitable, has been operating on EBITDA margins of between 30% to 50% in recent years.

Ord Minnett is equally positive with a Buy rating and a $6.80 target price, but patience is required, this broker acknowledges.

The losses and investment required on the powercloud acquisition are driving EPS downgrades of -13% to -20% by FY25. Ord Minnett expects the acquisition to add around 8% to EPS from FY26 onwards. FY24 earnings guidance excluding the powercloud acquisition remains unchanged at 5% to 7% revenue growth and an EBITDA margin of 30%.

“We back the company to execute on the integration [of powercloud] over time. Hansen’s  track record of acquisitions is outstanding, where the company has successfully executed and integrated more than 25 deals over its history,” Ord Minnett notes.

Shaw and Partners is also positive, with a $6.90 price target. Post the interim update and subsequent share price punishment, Shaw has reiterated its Buy rating.

While the update on powercloud highlights that FY24 and FY25 cash burn will be higher than forecast, the actual cash outflow for the purchase of EUR17m ($28m) was lower than this broker expected.

Shaw has increased its revenue forecasts by 1% to 4% but reduced FY24 and FY25 cash EBITDA forecasts by -16% and -14% respectively. In FY24, powercloud is expected to contribute revenue of $16m to $18m and a negative EBITDA of -$7m to -$8m. Combined revenue growth is expected to reach between 11% to 13% with an underlying EBITDA margin of 26%.

“Powercloud is a quality business and will generate positive shareholder returns over the medium-term … We expect the business will be refocused to drive cash profitability in FY26,” says Shaw.

Morgan Stanley is also upbeat with a $6.40 price target and Overweight rating on the basis that Hansen has a long track record of integrating M&A, cutting costs and improving EBITDA margins of the software businesses it acquires.

The core Hansen business is trading strongly, this broker highlights, with first half FCF strong and the balance sheet debt free.

Positive enthusiasm is equally palpable at Goldman Sachs with the broker zooming in on Hansen's favourable exposure to structural changes in the energy market. “Hansen has a strong track record of driving margin expansion in acquired companies and the price paid relative to revenue is low,” writes Goldman Sachs.

However, because powercloud will pressure earnings near term, this broker has a Neutral rating on Hansen shares in combination with a $5.20 price target.

FNArena's consensus price target, which combines UBS, Morgan Stanley, Ord Minnett and Shaw and Partners, but not Goldman Sachs (not monitored daily), sits at $6.65, suggesting Hansen shares look undervalued to the tune of -38.50%.

But as virtiually all analysts have suggested post H1 release and delivering a negative surprise regarding the powercloud purchase, shareholders may need patience before that gap will be closed.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

FNArena is proud about its track record and past achievements: Ten Years On

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms