Enghouse Systems (ENGH.TO)

Follows it. Stock's come down as company digests acquisitions. Interesting.

ENGH is now trading at 22x times' Forward P/E. Revenue was in a decline in the last two years after a very strong 2020, which was partly covid-driven. The balance sheet is strong, with net cash of $160M. ENGH could see upside potential when management ramps up on acquisitions. ENGH is still a decent company with a solid portfolio of businesses (high gross margins, in the 70% range). The multiple ENGH is trading also at the lower range of historical averages (ranging from 22x to 37x). We think ENGH is a HOLD for now, we would want to see management do something with the cash balance to create shareholder value (either do more M&A or buybacks). We would reconsider the position a while from now if management does not show improvement in capital allocation.
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Very defensive business model. Over $200M on balance sheet, no debt. Accelerated acquisitions in a difficult time. Transitioning to SaaS, with bumps along the way, resulting in temporary margin compression in latest results. Undervalued. He'd add today.

35 recent local acquisitions. Vertical software solutions in virtual healthcare, contact centres, and telecom. Pretty healthy balance sheet. Lots of cash for more acquisitions. Solid recurring revenue, significant free cashflow. Price target of $59.50. Yield is 2.4%.

Excellent company with good long term prospects.
Lots of cash on the balance sheet.
Shares not cheap enough to buy.
Will buy when shares fall.
Good business for the long term investor.

4Q EPS of 31c missed estimates; revenue of $106M missed estimates by 3%. 
EBITDA of $32.2M missed estimates by 10%. 
The quarterly results have always been 'chunky' but this was certainly a miss. 
Still, the company raised its dividend 19% and has $209M cash. 
Revenue was lower due to fewer perpetual licence and hardware sales. 
There was also a large contract that had lower margins. 
We are less concerned for the future, as the acquisitions of Qumo and Navita closed after quarter-end, and these should help 2023 results. 
EPS is expected to grow faster next year. 
All in, not a great quarter and we might not expect anything here in the short term. 
At 22X earnings and with a growing dividend we would put it in the HOLD category today. 
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Went down with tech last year. Debt-free balance sheet, over $200M in cash, at a time when tech's been washed out. Acquisition activity and share buybacks ramping up. Still undervalued. FCF yield around 5.5%. He'd buy today.

In call centres and infrastructure management. An M&A story and deploying capital. But organic growth went negative on the stuff they were buying, and they were very dependent on acquisitions. This turned off the market. No strategic review happened. They need to show organic growth or make an exciting, accretive buy to excite the market.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. History of profitable acquisitions. Strong net profit margins. Premium valuation justified by macro tailwinds. History of increased dividends. Unlock Premium - Try 5i Free

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Recent financial weakness. Strong liquidity and low debt levels. Facing headwinds due to surged competition. High cash balance and acquisitive growth. Unlock Premium - Try 5i Free