Enghouse Systems Ltd

Enghouse Systems Ltd (TSX: ENGH) is a Software & Computer Services company based out of Canada. The Company is engaged in the business of development of enterprise software solutions for a variety of vertical markets. ENGH divided the business into two reportable segments being the Asset Management Group and the Interactive Management Group. The Company’s products offering includes OSS (Operations Support Systems), VAS (Mobile Value Added Services), BSS (Business Support Systems) and conversion services.

Financial Highlights – Q2 and H1 Financial Year 2020 (30 April 2020, CAD, thousand)

(Source: Quarterly Report, Company Website)

In the first half of the financial year 2020, driven by an increase in revenue from software licenses, professional services and hosted and maintenance services, the revenue increased to CAD 251,556 thousand (H1 FY2019: CAD 175,248 thousand). The revenue in Q2 FY2020 stood at CAD 140,900 thousand (Q2 FY2019: CAD 89,203 thousand). Driven by higher revenue, the operating profit stood at CAD 77,119 thousand in H1 FY2020 (H1 FY2019: CAD 52,416 thousand) and CAD 46,276 thousand in Q2 FY2020 (Q2 FY2019: CAD 26,621 thousand). Reflecting higher revenue and operating income, the PBT (profit before tax) increased to CAD 55,676 thousand in H1 FY2020 (H1 FY2019: CAD 40,405 thousand), and the PBT (profit before tax) in Q2 FY2020 increased to CAD 34,909 thousand (Q2 FY2019: CAD 21,341 thousand).

The net income stood at CAD 43,225 thousand in H1 FY2020 (H1 FY2019: CAD 31,501 thousand) and CAD 27,809 thousand in Q2 FY2020 (Q2 FY2019: CAD 16,537 thousand). The basic earnings per share stood at $0.79 and $0.49 in H1 and Q2 of the financial year 2020, respectively. The cash balance as on 30 April 2020 stood at CAD 162,330 thousand (31 October 2019: CAD 144,764 thousand). The total assets as on 30 April 2020 stood at CAD 743,081 thousand (31 October 2019: CAD 590,600 thousand).

Share Price Performance

ENGH 1 Year daily technical chart. Source: Refinitiv (Thomson Reuters)

Enghouse Systems Ltd shares closed at CAD 73.18 at the time of writing after the market close on 28 August 2020. Stock's 52 weeks High is CAD 78.53 and Low is CAD 34.77.

Key Risks

Any change in regulations and government policies could affect the overall business of the Company. Excessive competition in the industry could affect the revenue and profitability of the Group. Failure in cybersecurity could hamper operational performance as well as the reputation of the Group.

Conclusion

The Company has shown an improvement in financial performance in the first half and second quarter of the financial year 2020. Both the top-line and the bottom-line performance have improved, with improved profitability margins. The revenue from core businesses improved along with solid liquidity position for the period. The Company has a well-positioned balance sheet and is focused on building a profitable enterprise software company with a global market presence and diversified product suite. ENGH operations were impacted by the outbreak of covid-19 as it impacted customers, employees and suppliers. The Company also experienced an increase in the sale of remote solutions like Vidyo with strong collections and cost savings. In long-run, the Group is well-positioned to manage the uncertain challenges.

Based on the above rationale, we have given a “Hold” recommendation for Enghouse Systems Ltd at the closing price of CAD 73.18 (as on 28 August 2020).

Disclaimer

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