What is ReadyTech?
ReadyTech Holdings Limited (ASX: RDY) provides SaaS technology in Australia and operates in three segments: Education, Workforce Solutions and Government and Justice. The Education segment offers cloud-based student and learning management systems for education and training providers to manage the student lifecycle, including student enrolment and course completion. This segment also provides platforms to help state governments manage vocational education and training programs.
The Workforce Solutions segment offers payroll software, outsourced payroll services and human resource management software solutions to assist employers with payroll and management of their employees in mid-sized companies.
The Government and Justice segment offers government and justice case management SaaS solutions to local and state governments as well as justice departments. It also provides asset management, property, licensing and compliance, finance, HR and payroll, and customer management products. ReadyTech was founded in 1998 and is headquartered in Sydney, Australia.
ReadyTech has a fast-growing business
The company has recorded a considerable 30% compounded annual growth rate (CAGR) in its recurring revenue in the last three years and we expect this growth rate to continue as digital transformation has accelerated in the wake of COVID-19 lockdowns.
Let’s take a look at ReadyTech’s price chart and see what moved its share price in the last 18 months.
❶ ReadyTech raises $25m at $1.88. (Presentation – Capital raising and acquisition opportunity)
❷ ReadyTech decides to acquire Open Office, a software provider for government and justice sectors, for a total cost of $80m. (ReadyTech to expand into a third vertical – Open Office)
❸ Open Office acquisition proves successful. (Open Office achieves first set of earnout hurdles)
❹ FY21 results show a continuation of growth in recurring revenue and EBITDA with an EBITDA margin of 37.8%. (2021 Full Year Results Investor Presentation)
❺ 1HY22 results show ReadyTech continues to grow its high-quality revenue in all three segments. (Half Year Results – Investor Presentation)
The successful acquisition of Open Office put ReadyTech’s revenue growth on a rapid upward trajectory that pushed the share price to a high of $4.30 in November 2021. Since then, RDY started to consolidate its gains as the tide started to turn for the tech sector. ReadyTech, however, has kept growing its business as evidenced by its 1HY22 results. Additionally, the share price has stayed above its long-term uptrend.
COVID-19 has increased the demand for digital transformation
Organisations in all three segments of ReadyTech’s business – Education, Workforce and Government – are experiencing a growing migration to cloud and SaaS. This digital transformation across all industries is nothing new, but what is news that this transformation has been accelerating in the wake of COVID-19 shutdowns as demand soared for technology-driven initiatives to enable remote work, distance learning, new customer experiences and new online sales channels.
ReadyTech is well-positioned to benefit from the opportunities created by the accelerated digital transformation. The company is investing more than 30% of its revenue in research and development activities to align its products with different customers, including larger enterprises, where it can open up new market opportunities for its businesses.
Valuation is attractive
RDY trades at EV/EBITDA multiples of 12.2x and 10.4x for FY23 and FY24 respectively. The company is expected to grow its EBITDA by 18.7% and 17% in those years. We expect ReadyTech to continue this notable rate of growth for the next few years as it is heavily investing in R&D and is opening doors to new customers and markets.
Although the company is profitable, we don’t expect it to pay dividends for the foreseeable future as it has many growth opportunities and the company also states that it will remain focused on growth.
How to play ReadyTech’s stock
The company’s share price has been on a long-term uptrend with a reliable near-30 degrees angle since the Corona Crash of March 2020 (the blue trendline on the chart). Given ReadyTech’s growing underlying business, we expect this trendline to hold for the foreseeable future.
In a recent development, the share price has broken the short-term downtrend (the red line on the chart). We expect the share price to consolidate alongside the broken downtrend to reach the long-term uptrend somewhere near $3.20. Therefore, we consider prices below $3.30 attractive with a price target near the all-time high of $4.30 to be reached in the next few months.
Stop loss at $3.00
Our suggested stop loss is a confirmed break below $3.00. A break below this price level would mean that the long-term uptrend is broken and it substantially reduces the chances of short-term price appreciations.
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Frequently Asked Questions about ReadyTech
- Is ReadyTech Holdings an Australian company?
Yes, RDY is based in Pyrmont, NSW.
- Does ReadyTech Holdings pay a dividend?
No, the company uses its funds to grow its business for the foreseeable future.
- Is ReadyTech Holdings a BUY right now?
We think prices below $3.30 are attractive with a stop loss at $3.00.
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