ReadyTech (RDY) $2.52

We haven’t revisited this Emerging Companies Portfolio holding for some time, and it’s been a frustrating one. Since initiating the position in early 2023 at $2.89, the share price has drifted lower, now trading around $2.52. We originally bought roughly four months after the failed Pacific Equity Partners (PEP) takeover bid at $4.50/share, on the view that while the deal didn’t proceed, it established a clear valuation anchor.

Nearly three years on, RDY sits in an increasingly familiar part of the ASX technology landscape: a profitable, growing software business with sticky customers, recurring revenue and strategic relevance,  yet trading at a valuation that implies something is structurally broken. We don’t think the current price represents the true value of the business.

By way of refresher, RDY provides systems and regulatory management software to governments, universities, TAFEs and large enterprises. These are mission-critical platforms embedded deep in customer workflows, creating high switching costs and long contract durations. Despite this, the stock is trading on a deeply discounted ~2.6x EV/Sales, reflecting market fatigue around execution, lumpy contract timing and a lack of obvious near-term catalysts. For a business that remains cash generative and strategically valuable, particularly to private equity, that valuation looks undercooked.

• The original PEP bid in 2022 was pitched at a ~35% premium, and notably, major shareholders opposed it on the basis it undervalued the business. With the benefit of hindsight, they might well have taken the money, but hindsight, as always, is a wonderful investor.

At current levels, RDY trades at a significant discount to both the broader ASX technology sector and key domestic peers such as TechnologyOne and Objective Corporation – even though both stocks have also pulled back sharply. Importantly, the share register looks largely unchanged from 2022. Pemba Capital remains the largest holder with ~28%, while Microequities holds ~14%.

Pemba’s stake sits in a fund that is approaching a decade in age, having acquired RDY before its ASX listing. That makes Pemba a natural seller over time, and we think the desire for an exit will only increase. Microequities faces less structural pressure, but after several years of limited share price progress and waning market interest, their enthusiasm may have cooled.

• RDY remains a quality asset, currently discarded by the market, trading well below peers and with at least one major shareholder motivated to realise value.

The final piece worth noting is the appointment of new CFO Bryce Thompson. Thompson is an ex-software investment banker, most recently Managing Director and Head of Technology Corporate Finance at Jarden, with prior senior roles at Morgan Stanley and UBS. Appointing a CFO with that resume rarely happens without a clear strategic objective in mind.