David Driscoll Enghouse Systems ENGH-T PAST TOP PICK Mar 25, 2025

Very frustrating. He stays because of the valuation. Massive free cashflow yield, debt-free. Not doing all it can to realize value for shareholders. Needs an activist. He's holding, and would buy today for new clients.

EPS of 37c beat estimates of 35.7c. Revenue of $130.5M slightly beat estimates of $129.7M. EBITDA of $37.7M beat estimates by 4.6%. Revenue rose 18%. EBITDA rose 13%. Recurring revenue rose 22.8%. Net income rosr 17%. Seachange is being integrated well. Net cash is $245M. Nothing too extraordinary here, but a beat and decent overall growth. Earnings are expected to rise 13% in 2025. 
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Trend has gone sideways lately. Would recommend a watch phase. If stock begins to trend upwards, would recommend buying. 

Small caps get whacked when interest rates rise. If investment-grade companies borrow at 6%, small caps borrow at 10%. Russell 2000 rallied after the election, and has fallen ~8% in December. ENGH has no debt. Strong FCF, dividend grows 15-20% every year.

Q4 earnings were a bit light, so stock's fallen. They also made 2 acquisitions in the quarter. With small caps, you have to be patient. Yield is 3.87%, almost unheard of for a small-cap stock. Switching business model to SaaS, which should improve margins over time and you'll eventually get increased profitability. Stock's at a new 52-week low, and he's buying.

He owned it when they were a typical Canadian compounder, reinvesting cash into tuck-ins, but it became lumpy. That's when he sold. They spiked during Covid, because they had a telehealth business, so YOY comps later didn't look good. Also, how does AI impact their large call centre business?

His 12-month target is $37, today it's at $27, so still a bit to go. Builds its business around acquisitions, both vertically and horizontally. Not in his fund, but in separately managed accounts. More of a trade than an investment.

On his radar because it's a cheap software business, with high margins and recurring revenue. Lower valuation than CSU, but not as effective at consolidating. Disappointing results, organic growth weak, slower M&A. Strong balance sheet. Good insider ownership.

A mini-CSU, because they have built by strategic acquisition well. It hasn't excelled like CSU, because they haven't scaled their business yet. He targets $36.50.

Not getting much love in the market. Cheaper than almost anything out there, yet keeps getting cheaper. Holding massive amount of excess cash; not using it to increase dividend or buy back shares, so it's in the penalty box. Value tends not to work in tech.

So much other great stuff out there now at reasonable prices.