Market Embraces Hansen’s Powercloud Surprise

Small Caps | 11:15 AM

Management's FY25 earnings upgrade boosts sentiment

Investor sentiment about the immediate future for Hansen Technologies ((HSN)) has been fragile ever since the acquisition announcement of Germany's powercloud in February last year.

Let's just say the way the deal had been communicated could have been executed better, in particular the need to make additional investments into product development in order to stabilise the freshly acquired business proved an unwelcome negative surprise.

Then in February this year, the company's first half earnings report revealed revenue rising by 6% on a year earlier and underlying earnings declining by -27%. Not what the market was expecting.

Interim results showed powercloud had generated an additional loss of -$7.5m on top of the loss on consolidation for five months in the FY24 result of -$10.2m.

At the time, Hansen management reiterated FY25 guidance, but a skeptical market sold down the shares, discounting another likely earnings disappointment.

More than four months later, Hansen shares were still trading circa -17% below their price level in February, significantly underperforming the broader market that had posted a sharp recovery off the April lows.

This week, management's update on FY25 earnings (EBITDA) guidance laid to rest market and investor jitters around the powercloud turnaround. A quick rally has pulled the share price back to where it was in February.

Shaw and Partners has repeated its view that guidance at the time of the February interim results was "conservatively" framed, even if revenue came in lower than flagged.

Having covered the stock for over a decade, Shaw and Partners' analyst was keen to stress management has a track record of conservative guidance, which has yet again been vindicated with this week's guidance upgrade.

Hansen announced a lift in FY25 cash earnings (EBITDA) by 16% at the midpoint to around $93m from $76m-$85m, resulting from improved operating efficiencies, better cost management and a positive contribution from powercloud, which is performing ahead of expectations as detailed at the time of the acquisition in February 2024.

Guidance upgrades and what it means for Hansen

UBS points to revenue guidance of $392m versus prior guidance at $398m-$405m, which can be attributed to delays for new project starts with circa -$10m in revenue deferred into FY26.

The UBS analyst comments against such an uncertain global macroeconomic backdrop, Hansen will deliver core revenue growth of 5% on FY24 and cash earnings (EBITDA) growth of 20%.

Within the context of Hansens's defensive earnings profile, due to the contract exposure to communications, energy and utility sector customers, which underwrites modest organic growth at best, UBS suggests FY25 looks set to represent a "very solid outcome".

Moelis, which initiated coverage of the stock back in April with a 12-month target of $6 and a Buy rating on the back of an expected turnaround in powercloud, must feel quite vindicated.