10 more ASX software shares, under $500 million

ASX software shares are my favourite. As I wrote earlier this week, 10 ASX software shares under $1 billion, there are more than 100 software and services companies on the ASX, as defined by their GICs sector.

Here are 10 more software shares from the local market, all under $500 million in market capitalisation. Some are promising, some are mediocre and one or two aren’t that great.

10 mid-cap software shares

Limeade Inc (ASX: LME)

Founded in 2006 by Tony Davis in Washington, USA, Limeade develops software used by companies to provide online wellness programs to their employees, together with employee engagement and assistance programs. The company typically signs customers to subscriptions, paid annually and upfront.

As you can imagine, employee wellness (if only online) is really important right now. Probably the most important it’s been since the internet was invented (the 1980s).

The company’s most recent quarterly report revealed revenue guidance of $56 million and a customer net retention rate of 98%, which is very promising for a growing company. Limeade had $28.4 million of cash on its balance sheet but quarterly net operating cash flow was an outflow of $2.9 million.

Bigtincan Holdings Ltd (ASX: BTH)

Bigtincan Holdings Ltd (ASX: BTH) is a provider of sales-enablement software, which is a fancy way of saying its automation platform helps companies learn more about their customers, to then be more productive and efficient when selling. Bigtincan’s software is used by companies in the life sciences, energy, Government, telecommunications, financial, technology, retail and manufacturing sectors.

In its latest quarterly result, Bigtincan booted goals for its shareholders, ratcheting up cash receipts 89% to $10.4 million with Annualised Recurring Revenue (ARR) up 53% to $36 million. A capital raising of $42.5 million means the company has some $72 million of cash and no debt. Looking ahead, the company expects to achieve 30-40% organic revenue growth.

Serko Ltd (ASX: SKO)

Serko is a company we’ve covered quite a few times here at Rask Media. Founded in 2007, Serko is a Kiwi software company that listed on the ASX in 2018. Serko’s travel management software is purchased by large Travel Management Companies (TMC) which use the software to book corporate/business travel for their corporate clients. Serko also offers an expense management technology platform, also sold through TMCs, to help companies keep on top of their financial reporting and record-keeping.

Serko is a very impressive business but given the headaches (to put it lightly) caused by COVID-19, the travel sector is in a world of hurt. Companies like Flight Centre Travel Ltd (ASX: FLT) and Corporate Travel Management Ltd (ASX: CTD) are Serko’s target TMCs — but Flight Centre and Corporate Travel are struggling. It’ll be interesting to get a copy of the upcoming half-year report, due out later this year. If travel rebounds quicker than expected, Serko shares should be at the top of your watchlist.

Citadel Group Ltd (ASX: CGL)

Also founded in 2007, Citadel Group is a diversified software company that provides secure information management to Government and non-government departments. Citadel’s software is used in real-time decision-making situations across the health, national security, defence and education industries.

I’ve never truly been able to get my head around the moving parts underneath Citadel’s bonnet, and therefore my ability to predict its cashflows and revenue is still too low to make it a position for us at Rask Invest.

However, with capital raising under its belt, some debt repayment and the acquisition of Wellbeing (a leading UK-based radiology and maternity software company), Citadel has continued its streak of buying software businesses to bolt them into its existing software stack. It’s one to watch.

Vista Group International Ltd (ASX: VGL)

Founded in 2014, Vista Group (ASX: VGL) is a provider of cinema management software for studios, exhibitions and distribution companies around the world. Under its hood, you’ll find around eight businesses providing services for things ranging from analytics on moviegoers to box office sales results.

As you can imagine the software is ‘sticky’ because once it’s installed it works and it would be hard to rip it out of a cinema. However, COVID-19 hasn’t been kind to Vista’s customers with cinemas in most countries around the world closed and unlikely to re-open to full capacity anytime soon. Vista is trying to make lemonade from lemons, by working with customers to add important tools ahead of cinemas reopening. Vista is due to report its results on August 27th. I’ll be watching closely.

Rhipe Ltd (ASX: RHP)

Founded in 2003 as NewLease, Rhipe is an IT services company with a particular focus on cloud-based environments on Microsoft’s (NASDAQ: MSFT) Azure public cloud architecture. The company specialises in providing customers with subscriptions for access to key IT infrastructure and management services.

Rhipe recently withdrew its FY20 profit guidance and cut its dividend, only to make way for a $34 million capital raising at a discount to the then share price. With shares down from a high of over $3 last year to $1.80 the bargain hunters could be lurking. I’ll be waiting for the latest batch of results before doing anything.

Dubber Corp Ltd (ASX: DUB)

Dubber is a software company specifically focused on cloud-based call recording and voice technologies. For example, the company’s software can be used by a small but growing company with a large database of voice recordings (e.g. from customer enquires). Dubber’s customer thinks a new call centre is needed but it’ll be costly, so it’s reluctant to spend on developing a new centre. Instead of that, the customer could use Dubber software and its AI to store recordings, tag them, search them or even automatically transcribe the call into text.

In Dubber’s recent quarterly, the $262 million market cap company reported revenue fell 2% to $2.56 million yet annualised recurring revenue was up 22% to $16.1 million. It also added 40,000 new users for a total of 192,544. It’s an interesting business with a sticky product, but it needs to grow to meet the market’s expectations.

Brainchip Holdings Ltd (ASX: BRN)

Founded in 2011, Brainchip Holdings Ltd is a company focused on developing a neural networking processor which it says will help bring artificial intelligence (AI) and other high powered computing to more customers. Brainchip’s Akida neural processer is designed to help customers create low-powered chips and systems, making powerful computing available outside a cloud environment.

Brainchip shares are up quite strongly over the past six months, starting the year below 6 cents and currently trading at 16.5 cents. However, in the most recent quarter, the company achieved cash receipts of just $8,000 and a net outflow of $1.47 million. It had $5.3 million of cash in the bank at quarter-end.

Damstra Holdings Ltd (ASX: DTC)

Founded in 2002 as a labour-hire company, Damsta now provides software and products to help companies manage workplace risk and the occupational health and safety of their employees. The company has a history of contracting to heavy labour industries like mining, construction, energy and manufacturing. It does this via its Software as a Service contracts and solutions.

In its most recent quarter, Damsta reported a 38% increase in revenue to $22 million with 91% of that recurring. Keep in mind Damsta has made a few acquisitions in recent times, including three in FY20: APE Mobile, Scenario Advantage and Smart Asset Software. Damsta says acquisitions are a core part of its growth strategy. It seems to me they do this to acquire customers, talent/staff and broaden the product suite.

I’ve seen software roll-ups work in the past, everyone knows Constellation Software, but I’d be cautious of these strategies. Good software roll-ups tend to take a long time to play out and shareholders should ensure the deals are adding real value (watch the diluted EPS) and without bloating the balance sheet with debt.

Livetiles Ltd (ASX: LVT)

Livetiles is an Australian company based out of New York which provides an ‘all-in-one’ cloud-based software management system and intranet. Corporate clients with more than 100 employees will use Livetiles to securely connect to popular online software tools like Microsoft 365, Google Drive, Slack, Expensify, Okta, Salesforce and more.

Despite a history of losses rather than profits, Livetiles recently reported positive operating cash flow of $1.2 million with cash receipts of $11.2 million. Pleasingly, the company was also able to say its average annualised revenue per customer had grown to around $53,000 across it 1,092 clients. That’s up from around $15,000 in 2017 as more companies embraced online tools and moved further deeper into the Livetiles platform.

Buy, Hold or Sell?

I don’t own any of these companies. That said, there are so many innovative companies on the list here for you to go away and learn about. If I was starting my research from scratch I’d choose Bigtincan Holdings, Dubber, Serko and Vista to focus on first.

Software is a growing part of the world we live in and there are some great examples of companies domestically and abroad that have proven there are high returns on offer for the right software company, in the right field, with scalability, at the right time. If you’re looking for a regular flow of growth stocks to add to your watchlist, bookmark our ASX growth shares page for a daily stream.

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At the time of publishing, Owen does not have a financial or commercial interest in any of the companies mentioned.

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