Each week, I’ll be picking a random small-to-mid-cap ASX stock that I have rarely seen discussed online (personally, yes I’m aware it may have been discussed at some point in history) – and that I do NOT hold – to cover at a glance.
We’ll have a look at what it does, some of their financials, and conduct some polling on general sentiment. The main purpose being to add some more variety in coverage to the standard blue chips or meme stocks we see pumped day in and day out, and hopefully discover some hidden gems or innovative companies on the Aussie market.
Here’s this week’s Random Stock of the Week.
Company name: Reckon
Industry: IT
Headquarters: Sydney
Market cap: $90m
Current share price: $0.8
P/E ratio: 9.5
1-year Performance: +68.42%
What they do, smoothbrain version: the Diet, Sugarless, Caffeine-free, Clear Pepsi version of Xero
What they say they do, wanky version: “Accounting software for busy people – spend less time managing your finances and more time on growing your business.” 🍆👋
What they do, actual version: “iS tHiS tHe NeXt xErO?” Probably not. That said, they do provide a similar SaaS-based accounting business that is seeing continued growth, just at a far smaller scale.
Sydney-based Reckon is a multi-purpose business software & solutions company that has been around since 1987 and provide a range of cloud and SaaS based services. These cover things like accounting, payroll, and POS (that’s Point of Sale, not Piece of Shit in this case, mofos).
They officially divide their business into three core software groups: Accountants, Business, and Legal, but by all indications, it’s the accounting portion of the company that carries the load financially.
Their Legal system/team in theory looks like it has potential, with a lot of legacy users out there still on oldschool desktop instead of cloud software they could potentially convert over, however it looks like a drag on the company instead.
They employ over 300 people, and their original founder/chairman is still involved in the business today.
What looks good:
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Profit after tax was up around 20% over previous period, while the bulk of their revenue (85%) comes from recurring subscriptions, aka reducing the reliance on necessarily needing to constantly acquire new customers to survive.
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Their annual user growth looks good, if not amazing. They’ve got over 100k of cloud users, with 35% growth in users annualised.
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They’re positioned in a good place technically, with everything cloud and app-based, so they’re not one of these older software dinosaurs that needs to rebuild everything to pivot.
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They provide a big-ass (I know we’re Aussie, but whenever I type “big-arse” it looks like a drunken Irishman typed it, so “ass” it is) dividend for a relatively small-ass company. 5.7% is massive yield for a company of this size, meaning even if you just get a bit of Share Price growth on top of it you’ve already received returns that would make AusFinance moist.
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I’ll say this for them; their front-end design and user experience on their systems, website, and even their annual report is slick and modern. Credit to their UX guys where credit is due.
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They’ve made some efforts to reduce their debt (more on that below) over the past couple of years, which is at least somewhat good to see.
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Their P/E ratio of under 10 is impressive and efficient given their market cap.
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They’ve been around since 1987, which is good in the sense that they’re not some fly-by-night SaaS business that is likely to go under should you throw your dollars at them.
What doesn’t look good:
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Lots of debt. Like, I believe the official term here is a “fuckload” of debt. Considering their size, even though they’ve paid down a chunk the last couple of years, having ~$36 mill or so of debt is hiiiigh. I get they need to continually fund development etc. to stay competitive, and release new products, but jeez.
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Considering how much they have spent on development per year, it doesn’t look like any of the newer products they have pumped out have had as much effect on the bottom line as they should have.
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Their management/exec team are also on pretty BIG salaries for the size and revenue of the company. For a handful of them each getting paid $800k+ per year, you can only return me 20% growth in profit during one of the biggest tech booms we’ve ever seen? Eh.
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A heavily competitive space given the likes of Xero, MYOB, and other more famous names exist, and given how typically hesitant businesses are to switch over software platforms given the effort, may be hard to steal market share.
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The fact that you probably asked “Who the fuck are these guys?” when you opened this thread is a case in point regarding brand recognition. As mentioned above, they’ve been around since 1987… less money on pure development, and more on marketing needed perhaps?
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Past deals have fallen through that would have helped drastically reduce their debt, including one with MYOB a few years ago which would have bought in a cool $180m of revenue, however MYOB got cold feet, their share price plummeted, and has never recovered.
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Share price has declined significantly since their peak around 2015, and while it’s climbed up a lot since its Covid-induced bottom in March 2020, it’s still only back to hovering around pre-Covid levels
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Brand name is pretty stupid, I “Reckon”. But then again, so is Xero.
Summary: This one is a little confusing to me, as the indications are there in terms of product quality, fundamentals of revenue, and tech capability that they probably should be bigger or more recognised than they are. This Covid “work from home boom” period saw many other software/SaaS companies share prices soar – so why didn’t Reckon’s?
You’d think with the general appeal of tech combined with their pretty sexy dividend that more investors in general would have been drawn to this – perhaps it’s the debt level that scares them off? If users are growing 35% annually, why isn’t that reflected as well in their revenue?
While I’d probably avoid it as I’m not big on Aussie tech – and as it flies in the face of the indicators I usually look for financially – to instead seem like it’s not going to fly anywhere amazing in the near future.
However, versus many of its tech sector peers, Reckon at least has profitability and a conservative/smart management team working in its favour. I’d potentially rather bet on these guys than some of the other absolute money pits in Australian fin-tech out there “if” I was interested in a domestic fin-tech… potentially.
Company website: https://www.reckon.com/au/
MarketIndex page: https://www.marketindex.com.au/asx/rkn
Feel free to add more DD/comments below.
Would you buy this stonk? Why or why not? Feel free to vote in the poll.
