Altium (ASX: ALU) is a current holding within Rivkin's ASX Growth portfolio, and in this article, we'll provide a more detailed summary of the company, as well as the potential outlook, which is designed to be informative rather than a standalone recommendation outside of the portfolios.
Altium Limited (ALU) is an ASX-listed company that specializes in developing software solutions for electronic product design and offers an online collaboration platform to facilitate the manufacturing of such products.
ALU primarily focuses on the development and sales of software solutions for electronic product design, as well as offering an online collaboration platform to facilitate the manufacturing of these products. The company’s enterprise solutions enable digital management of workflow processes and resources, catering to various industries that rely on electronic product design and manufacturing. The company’s flagship product is Altium Designer, a comprehensive PCB design software that offers a wide range of features and tools for designing, simulating, and manufacturing electronic boards. It supports schematic capture, board layout, and routing, as well as design documentation and manufacturing outputs. Additional products include Altium 365, the cloud platform for electronic design and manufacturing, and Altium Nexar, the cloud-based integration platform for Altium 365 and parts ecosystem.
The steady growth in the electronic design automation (EDA) industry, which is expected to reach $17.5 billion by 2030 from $11 billion currently, driven by the increasing demand for electronic products and the need for efficient design and manufacturing processes, is expected to positively impact Altium’s key business segments. With its innovative software solutions and online collaboration platform, Altium is well-positioned to capitalize on the growing EDA market.
The company delivered strong financial performance in the first six months of the financial year to June 30th 2023 as pricing power helped management maintain guidance of 15-20% revenue growth for the full-year. While a 17% increase in revenue to US$119.5m missed analyst expectations by 2%, net profit jumped 30% to US$29.6 beating expectations by 9%. CEO Aram Mirkazemi expects price increases to be reflected in the second half of the year, with analysts forecasting an increase of 15.9% to US$138.5 and earnings per share to increase to 21.7% to US$0.28 from US$0.23. Revenue and earnings over the coming years are expected to increase, albeit at a decreasing rate forecasting 16.7% year-on-year revenue growth in 2024 followed by 14.7% and 13.9% in 2025 and 2026. Earnings are also expected to grow steadily each year rising to US$0.90 by 2026 from $0.47 currently.
The shares trade on a high valuation multiple, currently at 53.29 on a trailing 12-month P/E, reflecting the market’s strong expectations for future growth. However, should the company deliver on forecasts as expected and earnings grow, the P/E multiple is expected to contract to 40.38 in 2024 and 32.82 in 2025.
ALU is generally considered a growth stock which has strong quality characteristics including a high return on capital employed. As a current holding with Rivkin’s ASX Growth portfolio, the stock stands to benefit from its pricing power within a growing industry. Despite this, analysts maintain a mixed outlook with 30% recommending a buy, 41% a hold and the remaining 29% recommending selling with an average 12-month price target of $39.36 implying just 6.4% potential upside from current prices.
ALU is expected to next report earnings for the period to June 30th 2023 on August 22nd with adjusted earnings and revenue of US$0.277 and US$138.50 expected.