We are currently sitting on a ~16% profit in ReadyTech (RDY), the provider of people management software, but its shares have waned following the spike post their FY23 results. The company, which offers a cloud-based product for enterprise, education and government sectors, posted a small beat to expectations in FY23, but provided strong guidance on continued revenue growth, tapping a $970m pipeline of opportunity and expanding margins. Based on consensus expectations, revenue is expected to grow ~15% p.a. over the next few years from the $103m FY23 base. While we see this as conservative based on the company’s recent execution and relative to their opportunity pipeline, we are yet to see any major deals signed in the first ~5 months of FY24 that would significantly de-risk the outlook.
Working in the company’s favour though is the improving operating leverage that should see EBITDA margins rise from 32% to over 34% based on FY24 guidance. Costs were well controlled in FY23, a trend we are backing management to continue. Additionally, RDY trades on a steep discount on an EBITDA multiple, around half of what competitor Technology One’s (TNE) valuation of over 40x. We will give RDY the benefit of the doubt for now, given we are happy to stay long tech into early 2024, but we are looking for some momentum on the sales front soon.
MM is bullish & long RDY in the Emerging Companies Portfolio
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