A UK Listed ARR Compounder for 3.9x FCF
Includes no debt and net-cash equal to 60% of the market cap.
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The market is currently pricing today’s business as a distressed asset in terminal decline.
No growth ever again while the existing cash-flows rapidly deteriorate into nothing within the next 5 years.
It also assumes that, during the same period, the management team will burn all of the cash, which currently represents 61% of today’s market cap.
When we read the actual reports, we see a business compounding its annual recurring revenues at 17% per year, since 2021.
We see sticky blue chip customers on 3-year contracts, paying annually, up-front.
We also see those clients retain at a rate of over 95% (often 98%+).
There’s no debt.
This certainly doesn’t look like a dying business.
Quite the opposite.
In fact, as I was researching the business, I couldn’t help getting excited about the thought of selling their products.
Also, refreshingly, the reason for the sell off has nothing to do with AI disruption.
In fact, for this business, AI is a structural tail-wind that is likely to propel it forward, rather than eat it alive.
So, we have a high-quality software compounder, benefitting from the AI boom, being offered to us at a bargain basement price.
Let’s take a look…