Another outstanding result from Altium

Ben Clark

TMS Capital

Altium has again delivered an outstanding full-year result, posting EPS growth of 41% for the year. Revenue grew a healthy 23% with the highlight again being the EBITDA margin of 36.5%, up from 35%, and the company has today committed to a ‘floor’ in this metric of 37%. The numbers appear to be broadly in line with market expectations.

The CEO, Aram Mirkazemi, was typically upbeat, and every time I hear him present I sense growing confidence the company is tracking to where he believes its long-term future lies. 

Having said that, there were some comments that I feel were deliberately placed to pull back the market's expectations, which I’ve mentioned below.

Success in China a highlight

Designer seat sales saw the strongest half on record with 8,000 new seats sold for growth of 27%. Subscribers were up 13% to 43,600. The growth accelerated in the second half. 

Two of the smaller parts of the business, Octopart, and Tasking had very strong years delivering 49% and 37% revenue growth respectively.

After three years in partnership, Dassault Systems and Altium are close to launching a specialised new product of its Design software – more to come in the near future.

The highlight was in China which as a region delivered 37% revenue growth. The company has opened a new office in Beijing, noting they ‘see significant growth in China going forward’. Clearly, the company seems to be solving the illegal use of software in the country. When Altium 365 is launched in China it will be impossible to pirate the up-to-date software.

Only one specific impact from the trade war was a very small business line with Huawei. The company seems comfortable there will be little ramifications for the business.

Close to a tipping point for market dominance

Altium 365 goes live later this year. Beta-testing has provided encouraging feedback. This is the cloud-based platform that promises to be a game-changer for their core subscriber base, helping to drive engagement, although Aram did flag that moving users to the cloud will take time. 

Users will be wary about having all their design data hosted in a new cloud offering. It feels like the CEO wanted the market to understand this shouldn’t be judged as an overnight success.

Altium is closing in on a tipping point of market dominance. However, as the report suggested, this ‘won’t be a walk in the park’. Aram spent some time making the point that shareholders should not become complacent that their longer-term goals will be easily achieved, given Altium will simultaneously need to deliver best-in-class technology whilst disrupting the status quo. Aram said that the thing that keeps him up at night is that this will only happen if the major players in the electronics industry are open to, and embrace, this evolution.

Another enviable set of numbers 

All up, today's result presented another enviable set of numbers. From here, the company will easily exceed its 2020 aspirational goals, and investors' thoughts should now move to whether the 2025 numbers can be achieved.

We expect the short-term pricing volatility will continue as the market continues to wrestle with what an appropriate valuation is for this business. 

In the meantime, our view remains that if the longer-term targets are achieved, very attractive shareholder returns will ensue. 

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Ben Clark
Portfolio Manager
TMS Capital

Ben Clark commenced his role as Portfolio Manager with TMS in 2005 and has over 20 years’ experience in the industry. Ben manages portfolio's directly for high net worth individuals as well as overseeing the TMS Concentrated Australian share fund.

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