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Date : 24/03/2023

Momentum returns to ReadyTech (ASX: RDY)

ReadyTech (ASX: RDY) is a SaaS cloud-based software provider for the education, workforce, government, and justice sectors. RDY was listed on the ASX in April 2019, and while it traded under the $2 range for most of the year and the next, the share price experienced massive momentum in 2021 as business momentum grew.

Last year, RDY shares jumped up to $4 a share as they received a non-binding takeover offer from Pacific Equity Partners Pty Limited and its affiliates (PEP), a leading Australian private equity firm. The offer was for $4.50 a share. However, seeing that the share price action did not see RDY go close to the number suggests that the market did not ever believe that RDY would accept the offer and the deal would go through.

This, coupled with a slowing business momentum and interest rate hikes, piled pressure on the RDY share price, and we now see it trading around the $3 range – around 50% less than the offer price.

On the 22nd of March, RDY announced its 1H23 results, and business momentum has returned to the company once more. The company also maintained its guidance for FY23 – leading to shares jumping as much as 9% on the back of the announcement. There may still be upside potential in RDY.

RDY’S First Half FY23 Performance

RDY’s financials beat market expectations. The result was buoyed by a strong transformation agenda across all customer verticals and the company delivering continued growth and strong margins as it successfully executed its enterprise strategy.

Highlights of the result included:

  • Revenue up 34.1% to $47.9 million
  • Like-for-like revenue growth of 13.4%
  • Net revenue retention at 103%
  • Subscription and licence revenue of $40.3 million, representing 84% of total revenue
  • 6 major landmark enterprise contracts signed totalling $9m in deal value
  • New wins lifted average revenue per new customer by 40% to $72.3k
  • Underlying EBITDA of $15.6 million (excluding LTIP)
  • Underlying EBITDA margin of 35%, including ITV 32.6%

This is what Stood Out in ReadyTech’s Result

The numbers reflected low churn, customer expansion and successful upsell and cross-sell. Organic growth was underpinned by ReadyTech’s ability to grow the share of wallet with existing customers via upsell and cross-sell, as well as new user subscription and module upgrades.

ReadyTech’s targeted strategy to win high-value enterprise customers is proving successful, with new customer wins lifting average revenue per new customer by 40% to $72,300, including 24 new high-value customers generating aggregate annualised revenue and implementation fees of $10.8 million.

ReadyTech’s high-quality subscription revenue and scalability support strong margins with underlying EBITDA of $15.6 million, reflecting a margin of 32.6% (excl. LTIP). Excluding the impact of IT Vision of $0.8 million, EBITDA was $14.9 million with a margin of 35.0%.

The strong momentum is expected to continue in 2H FY23, with revenue flowing from a $9 million deal value signed from 6 recent enterprise deals and the strong and growing high-conviction pipeline.

ReadyTech maintained its Guidance

RDY’s CEO, Mr Washbourne, said: “ReadyTech is well positioned and on track to achieve its FY23 guidance of organic revenue growth in the mid-teens, with $2 million incremental revenue contribution from FY22 acquisitions, and EBITDA margin in the range of 35% to 36% excluding the impact of LTIP.”

“Our enterprise customer wins, together with our high conviction pipeline of over $27 million, provides us with the confidence to reaffirm our long-term outlook of over $160 million of organic revenue in FY26. We remain focused on delivering sustainable growth in FY23 and beyond.”

Where to now for RDY shares?

Business momentum has returned to RDY. Along with the strong result, the company confidently reaffirming its guidance boosted investor sentiment. This momentum should support the share price in the short to medium term.

RDY is owned by private equity firm up to ~30%, with Pemba Capital Partners Fund being the largest shareholder. Given the private equity business model, they will be looking for an exit at the right price now that RDY is listed on the ASX. This opens the door for a potential acquisition of RDY in the future.

We have already seen that $4.50 does not cut it as far as the current ownership is concerned. This return of momentum may just be what Pemba Capital Partners Fund needed to attract higher bids soon.

RDY shares are trading 45% off the failed acquisition bid at current prices. As it’s quite clear that future bids have to beat the $4.50 price, the upside could be greater for RDY investors.

 

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