Hansen: Interim result 2015

For empire-builders in the corporate world, failure is all too common. In the tech sector, it's especially so. Hopes run high, price tags even higher, and the 'synergies' never seem to materialise.

But, when management is conservative in its assumptions and unwilling to overpay, acquisitions can also pay off handsomely. Hansen Technologies' latest interim result is a case in point.

Last year, Hansen bought Banner CIS, a North American billing software provider for water utilities. The company serves 46 municipal customers across 30 US states, which pay a monthly management fee with a contractual yearly escalation. The business accounts for 10% of Hansen's revenue.

What's more, it can take several years to build a new billing system and millions of dollars, so municipalities almost never switch software providers. Banner CIS has significant pricing power, which makes for juicy margins.

Management never shared the details but given our estimates of incremental earnings we doubt the company paid a price-earnings multiple of more than 10, which is a steal for such a high quality business (see Hansen: The next Computershare? from 8 Jan 15 (Hold – $1.73)).

Thanks mainly to the Banner CIS acquisition, Hansen's revenue for the six months to December increased 19% to $49m, while operating earnings were up 42% to $16m. The company's operating margin increased from 27% to 32%.

Pay TV

Other recent acquisitions are also ticking along nicely. In 2013, Hansen bought Pay TV billing operator ICC, which now makes up 25% of total revenue. The acquisition demonstrates Hansen's knack for growing its business slowly at the edges rather than branching into unrelated areas, as acquisition-hungry managements so often seem to do.

Hansen had no direct experience in Pay TV; however, from a billing perspective, Pay TV customers resemble Hansen's existing telco clients. Telcos and Pay TV operators are increasingly having to calculate complex bills that bundle fixed-line, mobile, internet and Pay TV products sent to a growing number of devices – laptops, iPads, mobiles etc. The exploding product variety and constant churn of special offers requires more frequent updates and adaptive billing software, which is Hansen's specialty. Management said: 'our increased focus on sales and marketing is gaining further traction with new contract wins in the utilities and Pay TV industry'.

Hansen earns around two thirds of its revenue in foreign currencies so the lower Aussie dollar has benefited the company when translating its foreign earnings for reporting. However, the company has several overseas offices and its costs are relatively well matched to revenue, so it doesn't impact profits and margins directly. Nonetheless, net profit increased 22% to $8.8m, while earnings per share were up 20% to 5.3 cents.

Management expect full-year revenue above $95m with an operating margin of 25-30% and believes the company 'can achieve a result towards the top end of that range if trading conditions remain favourable'.

The share price has increased 27% since Hansen: The next Computershare? from 8 Jan 15 (Hold – $1.73) and 44% since Hansen upgraded to Buy from 29 Oct 14 (Buy – $1.52). The stock trades on a price-earnings ratio of 21 and dividend yield of 2.8%, but, with a clean balance sheet and stable growing cash flows, we're happy to HOLD.

Note: Our model Growth and Income portfolios own shares in Hansen Technologies.

Disclosure: The author owns shares in Hansen Technologies.