Stock Update

Altium Ltd. (ALU:ASX)

20 Aug 2019
Altium Limited develops electronic design automation (EDA) software for the Microsoft Windows operating system. Altium's products facilitate and aid in the design of electronic products such as printed circuit boards. The Group's products are utilised by telecommunications, automotive, defense, science and consumer electronics industries.

ALU reported its full year results after market and we were holding our breath this morning awaiting the market response as the stock has rallied pretty hard since its interim numbers six months ago. Fortunately, the performance of the company has been excellent and that has been reinforced this morning by trading higher on a pretty weak day for tech stocks.

ALU didn’t exceed expectations by any means for the year just passed, but there was plenty of reason to be excited after reading the company’s commentary for the new financial year. Primarily, it looks like its earlier guidance of US$200m in revenue should be beaten handily. Additionally, ALU has committed to a higher EBITDA (earnings before interest, tax,depreciation and amortisation) margin guidance of 37% going forward after recording 36.5% for FY19. That’s a very impressive margin and shows the scalability of the business – most of Australia’s best tech names share this quality – and could improve over time as ALU increases its revenue which will include higher revenue per customer.

ALU remains committed to its five-year revenue target of US$500m but that looks conservative given the momentum in the business and the success ALU is having in China which is growing very quickly. ALU has been largely spared from the trade war but did state that there is some risk from elevated tensions between the US and China.

ALU remains a hold as part of the value Strategy.

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