I think it’s time to watch Altium Limited (ASX: ALU) shares and Bravura Solutions Ltd (ASX: BVS) shares because, depending on how the next three months go, these could be among ASX’s top ‘COVID-19 rebound stocks‘.
- Low amounts of debt
- A strong working capital position
- Very sticky customer base, and
- Lots of long-term potential
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Bravura Solutions is a wealth management software business established in 2004. Bravura offers software solutions and services to superannuation and pension funds, life insurers, investment companies, wrap platforms, private wealth advisers and funds administrators.
As at the half-year period just gone, Bravura said 78% of its total revenue was recurring and it was in a net cash (total cash minus current trade payables, contract liabilities and leases) of $51 million. While the company had $79 million of staffing costs, it seems unlikely the business’ profit would go to zero, and it could cut costs if it needs to.
Meaning, it could rebound quite well from a short or medium-term fall in the economy.
Altium is an Australian multinational software business that was founded in 1985. It now has offices globally in places like San Diego, New York, Boston, Munich, Shanghai, Tokyo and Sydney. Its software focuses on electronics design systems for 3D PCB design and embedded system development. Its services include Altium Designer, Altium Vault, CircuitStudio, CircuitMaker, TASKING and Octopart.
It’s no secret that Altium has been growing fast as ‘the internet of things’ continues to pervade home and business. I think more engineers and designers will adopt Altium’s technology in 2020 because compared to competitors it is faster to implement, can be accessed via the cloud and it’s often lower cost. Meaning, engineers can still use it from their remote locations, onboard relatively quickly and the upfront costs of the software are palatable, even in this environment.
As of 31 December 2019, Altium had 46,693 subscribers (up 16% year over year), recurring revenue of 59% (total revenue was $US93 million), no debt and $US81 million of cash. It has very ‘clean’ financials which appear to me to be lower risk than many other ASX-listed companies right now.
Buy, Hold or Sell
I’ll be doing more research on these two companies this week for Rask Invest. I’ve followed Altium for a long time and each time I’ve done a valuation of its shares it has come back as being fairly valued or too expensive for my liking. That said, if the volatility continues and its major customers and users in China, Europe and the USA continue to feel the effects of COVID-19, we could see some very compelling short-term buying opportunities.
If you’re looking for some more rock-solid ideas to add to your watchlist or portfolio in 2020, grab a free copy of my investment report, below.
Disclosure: At the time of publishing, Owen does not have a financial interest in any of the companies mentioned.