Another very good result from HiTech (ASX:HIT) with FY 19 revenue up 15% and EBITDA up 10% compared with previous year. This continues the consistent pattern of growth which has been evident over the past 5 years. The EBITDA margin slipped a little but that would appear to be the only issue with result. Bottom line is that there would appear to be no shortage of Commonwealth government driven technology implementation and management projects to keep the company busy.
Source: Commsec
The balance sheet is still debt free with nearly $6 million in cash. The operating cash surplus is effectively being paid out as dividends. At 8 cents per share the annual yield is nearly 7% fully franked after the recent spike in the share price.
Since the beginning of July, the share price has jumped from $1.00 to $1.19. Even at this level the 2019 PER is 15.6x and EBITDA/EV is 8.8x. Hardly excessive given the strong history of growth and really strong balance sheet. FY 2020 valuation multiples are even lower based on a reasonable growth outlook.
I assume historic growth patterns will be repeated in FY 2020, but what next? The company has not publicly fleshed out its M&A strategy other than to say it will “fit the industry and company culture”. I assume that its targets will be in the newer, developing areas of technology where demand is rising sharply in its core market. Again, this would seem to point to cyber security and cloud services. And I would expect any acquisition to offer broadly similar service capabilities as HiTech currently offers being contract management and project implementation. Nonetheless, with about $6 million in cash resources, a debt free balance sheet and access to equity markets, HiTech has the ability to fund a decent sized acquisition which could provide a quantum leap in growth and scale.
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