Small Caps | Apr 01 2025
After a negative reception initially, the powercloud acquisition is ready to start making a positive contribution to Hansen Technologies' growth prospects.
-Moelis' initiation of coverage adds another Buy rating for Hansen Technologies
-Potential for material near-term earnings growth for powercloud
-Management's long history of capturing M&A synergies
By Mark Woodruff
Shares of Hansen Technologies ((HSN)), a global provider of software and services to the energy, water, and communications industries, have been on a rollercoaster ride since the acquisition of German software platform powercloud in mid-February last year.
While the acquisition expanded Hansen's presence in key target markets, Germany and the broader DACH region (Germany, Austria, and Switzerland), the announcement initially triggered a sharp share price decline to near $4.00 from around $5.60, as the newly acquired business was generating significant earnings losses.
Given Hansen's history of delivering immediately EPS-accretive acquisitions, investors felt they were caught off guard. At least, such is the explanation provided by analysts at Morgan Stanley.
As a more comfortable picture emerged for both Hansen and the newly acquired business, the share price recovered and then some, until Trump tariffs anxiety hit global markets from February onwards.
The shares closed at $5.00 yesterday.
New research coverage
Moelis has freshly added Hansen Technologies to its local stock coverage. The initiation of research report labels the turnaround of powercloud as a meaningful near-term earnings growth opportunity, setting a 12-month target price of $6.00 and starting with a Buy rating.
The report highlights Hansen's evolution from building solutions for Telstra Group ((TLS)) to developing its own proprietary software products, now marketed globally.
The Communications division provides complex systems to telcos and pay-TV providers/communications software providers (CSP's) with software solutions helping deliver services to their customers.
In the Energy & Utilities division, Hansen provides Customer Information Systems (CIS) and Billing software solutions to numerous large electricity players and utilities across the globe.
Moelis points to a history of successful expansion over time, a currently stable management team, and geographically diverse operations, with no single customer accounting for more than 8% of revenue.
Creating opportunities for innovative new software services, these customers face changes around deregulation, decarbonisation, decentralisation, 5G transition, emerging producer-consumer (prosumer) customers, and the need to adapt systems for emerging technologies such as AI, explains the broker.
Like many software vendors, Hansen has minimal need for investment in fixed assets, with the majority of its asset base comprising acquired intangibles, such as technology and goodwill, and capitalised software development.
Moelis believes the current valuation for Hansen provides attractive upside potential and takes execution risks into account for ongoing development and enrichment of the product suite.
Necessitating this product improvement, competition is hot from large incumbents as well as startups offering differentiated functionality, explains the broker.
While the current share price does not imply a demanding growth outlook, in the analyst's opinion, Hansen does face competition from large competitors wishing to retain market share (SAP, Oracle) as well as from challenger platforms.
The company has long established customer relationships, but emerging platforms such as Kraken, Tally, and Gentrack Group ((GTK)) have been successful in winning market share, highlights Moelis.
The complexity and diversity of energy regulations across differing geographies has supported the relatively large existing ecosystem of utilities software providers.
Acquisitions since 2019, the latest being powercloud
Uniquely, Hansen offers a differentiated investment case among Australian software stocks under Morgan Stanley's coverage.
While the company attracts less investor attention due to modest organic revenue growth, the broker emphasises Hansen's consistently strong earnings and free cash flow generation over an extended period.
In the analysts' view, Hansen's disciplined approach to bolt-on acquisitions represents a compelling "free option" for investors, underpinned by a decade-long record of effective execution.
Acquisitions have been integral to Hansen's growth strategy.
The strategy by management, explains Moelis, is to capture synergies, while retaining alignment of software solutions to local regulatory requirements and client preferences.
In 2019, the company acquired Sigma Systems, a leading global provider of catalogue-driven software products for telecommunications, media, and technology companies.
Some notable additional acquisitions have been of companies servicing the electricity gas & water markets, including Peace, Nirvana, Utilisoft, Banner CIS, and, most recently, powercloud for -$49m.
Looking ahead, Moelis has incorporated a successful turnaround of powercloud into its forecasts, with the resulting cash flow recovery expected to support ongoing debt reduction.
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