ReadyTech Holdings Ltd - Ready for Continued Growth
ReadyTech Holdings Ltd
Ready for continued growth
ReadyTech Holdings Ltd (ASX:RDY) is a leading provider of mission-critical SaaS software to the education (~42% of H1 FY22 revenues), workforce management (31% of revenues), and government and justice sectors (27% of revenues). The group currently has >4,600 customers spread across its three segments. Education products range from student management, student self-serve platforms and analytics. Employment products include payroll management, onboarding, expense management and business intelligence. Government and justice products include a community engagement platform, events booking and a central enrolments platform for community childcare. RDY listed on the ASX in April 2019, raising $17m at $1.51/share together with a shareholder sell-down of $33m. RDY has consistently acquired businesses for added functionality and exposure to new clients, and this has continued since listing with the acquisition of Open Office in March 2021 ($54m + earn-out), Avaxa in September 2021 ($2.2m) and Open Windows in December 2021 ($4.8m + earn-outs). The recent H1 FY22 result delivered strong metrics across the board with like-for-like revenues growth of 16.8%, underlying EBITDA +55% and underlying NPAT growth of 64%. There are not many profitable mid-cap tech stocks to use as peers, but of those selected RDY is trading in the middle of the small sample on an EV/ARR basis at around 5.6x H1 FY22.
Business model
RDY sells a range of SaaS software products to its customers with ~85% of revenues estimated as recurring. The group has three key focuses: secure new customers in existing verticals; sell additional products to existing customers; and enter new verticals, with government and justice the most recent example via the acquisition of Open Office in March 2021. As an example, migrating customers from just the “payroll” product (HR3) to the full workforce suite (Zambion) is estimated by management to offer 3x the current ACV or ARPU.
Underlying NPAT grows 64% in H1 FY22
The H1 FY22 result delivered on the group’s strategy in terms of new clients (the addition of 22 “high-value customers”), increasing revenue per customer across the portfolio, high recurring revenues (85%) and a 97% customer retention rate. The result was like-for-like revenues growth of 16.8% (to $35.7m), underlying EBITDA growth of 55% (to $12.9m) and underlying NPAT growth of 64% (to $6.9m). Organic revenue growth guidance for FY22 was unchanged at “mid-teens”, while the FY22 revenue target was upgraded from >$125m to >$140m on the back of recent acquisitions.
Profitable small- to mid-cap SaaS players are peers
Listed peers for RDY are small- to mid-cap, profitable SaaS-based businesses with EBITDA margins between 30% and 40%. These businesses do not have to play in the same sectors but rather have the same drivers and challenges as RDY, including continued customer acquisition and retention, product enhancements and recurring revenue mix. Peers include full-suite ERP solutions player (and competitor) Technology One (ASX:TNE), and energy, water and communication software provider Hansen Technologies (ASX:HSN). On the latest releases RDY sits between TNE (10.5x) and HSN (4.0x) on a EV/ARR basis at 5.6x H1 FY22.
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