Asure Software program Inventory: Nice Firm However With A Premium Valuation (NASDAQ:ASUR)

Asure Software program, Inc. (NASDAQ:ASUR) is a $290-million market cap cloud-based human capital administration [HCM] software program firm that’s headquartered in Austin, Texas and serves primarily the U.S. market. In accordance with Looking for Alpha, the corporate supplies options for small and medium-sized companies to construct productive groups, keep compliant, and allocate assets to develop their enterprise.

Based mostly on the latest 10-Okay filling, Asure Software program generates income from its software-as-a-service suite for human useful resource wants corresponding to payroll, tax, HR compliance, time and attendance, and AsureMarketplace, in addition to from quarterly and annual reporting necessities. {Hardware}-as-a-service income is generated from renting units used to trace time and attendance, whereas upkeep and assist income is generated from servicing the {hardware} and offering coaching. Skilled companies income is generated from fulfilling purchasers’ wants usually fulfilled by an inside payroll system or HR division. Moreover, the corporate earns income from tax administration options and curiosity gained from shopper funds.

Asure Software program’s inventory has seen vital progress, nearly 140% over the previous yr and over 51% year-to-date. The corporate’s robust Momentum issue amid its superior Development and above-average Profitability elements, place the corporate on the frontline of its business, based on SA Quant System.

And that is not stunning – the corporate is making an attempt to construct its enterprise mannequin to attain steady income progress of 20% over the long run, counting on each natural sources and accretive M&A transactions:

Based mostly on the CEO’s assertion, the corporate plans to give attention to rising its buyer base and suite of companies whereas persevering with to prioritize natural progress and profitability. Precise monetary outcomes are consistent with administration’s goal, so far as I can see. For This autumn 2022, income elevated 39% to $29.3 million and recurring income elevated 25% to $24.1 million in comparison with the identical quarter final yr. For the complete yr 2022, income elevated 26% to $95.8 million and recurring income elevated 21% to $86.2 million in comparison with the prior yr. The corporate reported a internet lack of $1.1 million in This autumn 2022 and a internet lack of $14.5 million for the full-year 2022 however adjusted EBITDA elevated $4.2 million year-over-year to $11.8 million. Asure Software program additionally introduced integrations with ZayZoon, H&R Block, and TurboTax, that are anticipated to offer new alternatives for income progress.

Regardless of potential financial challenges, the corporate stays optimistic – the administration units new benchmarks for income and adjusted EBITDA figures for FY2023:

Asure Software program’s recurring income grew 21% YoY with a bookings progress of 126% in FY2022, leading to an anticipated adjusted EBITDA margin enlargement of ~400 foundation factors by the tip of FY2023 [16% mid-range vs. 12% in FY2022]. So the administration guides to an absolute EBITDA progress of 129.2% in FY2023 [ YoY] – that is so much.

Wanting on the historic dynamics of the corporate’s progress, such a objective doesn’t appear unattainable. ASUR shareholders must be glad that the corporate is just not solely searching for methods to develop however doing so qualitatively by making an attempt to broaden its margins and stay self-sufficient.

Now that the corporate has reached a sure measurement and is counting on steady gross revenue and EBITDA era, free money stream and working money stream doesn’t seem like a one-time success – almost definitely ASUR will proceed to have constructive FCF and can begin actively shopping for again shares in some unspecified time in the future. Both approach, I would prefer to see it occur in some unspecified time in the future.

On the whole, I like the best way the corporate is rising and creating, in addition to the long run it sees forward. The corporate’s finish markets are estimated at over $90 billion in the present day, and the complete TAM is predicted to develop at a CAGR of seven.6% over the subsequent few years. In different phrases, an almost $300 million firm positively has room to develop and self-improve. The crux of the matter is its valuation – I will get into that under.

Valuation & Expectations

I discover a major distinction between the anticipated EPS and the precise seasonal tendencies within the firm’s enterprise. Looking for Alpha information reveals that The Road’s EPS estimate for Q1 FY2023 is $0.17, which is similar as This autumn FY2022. Nonetheless, if we analyze the earlier This autumn-Q1 quarters and their quarter-over-quarter modifications, we will see a constructive seasonal shift in absolute phrases for the first quarter:

Sure, the projected YoY progress of 56.36% appears to be like robust – nonetheless, there’s additionally the impact of the low base fashioned on the time of the coronavirus. Now the corporate has simply returned to pre-pandemic ranges, displaying solely modest progress in This autumn 2022 in comparison with 2018:

In 2019, the corporate generated $26.76 million and adjusted EPS of $0.22; in the present day, analysts anticipate Q1 2023 income of $29.4 million and EPS of simply $0.17. On the similar time, again then – in 2019 – there was much more debt (therefore the curiosity expense).

One thing doesn’t add up right here. Due to this fact, I imagine {that a} return to pre-pandemic ranges, plus a seasonal issue, ought to enable ASUR to once more beat present analyst forecasts for not less than Q1 FY2023 – if these estimates usually are not raised earlier than the report. Implementation of any of the proposed situations ought to theoretically drive ASUR inventory value to new highs.

However is ASUR inventory pretty valued in the present day?

Out of the 214 Utility Software program shares offered within the Looking for Alpha pattern, I utilized two easy screening standards to slim down the listing to only 74 firms:

• Enterprise Worth between $200.00 million and $4.02 billion;
• Trailing Twelve Months [TTM] EBITDA Margin between 5.00% and >70.00%.

Utilizing this refined pattern, I plotted the TTM EBITDA margin on the x-axis in opposition to the present EBITDA margin on the y-axis to research ASUR’s place inside its business based mostly solely on previous information.

I chosen a number of firms with completely different TTM EBITDA margins, however such that the group’s median worth was roughly on the 16% degree – that is how a lot administration sees by the tip of 2023. Then I in contrast the EV/EBITDA [TTM] multiples of those firms and obtained the next image:

However not all of those firms will develop on the long-term progress fee that ASUR’s administration is focusing on, so there must be a premium to the valuation. I believe 30% appears to be like fairly truthful. On this case, ASUR is rightly valued – however solely on the situation that we go away the idea of a premium for future progress and margin enlargement:

Valuation evaluation	no premium	30% premium to the a number of
Adj. EBITDA FY2023	16.96	16.96
EV/EBITDA a number of	14.05	18.27
Enterprise worth [EV]	238.29	309.77
Internet debt	26.20	26.20
implied MC (EV – internet debt)	212.09	283.57
present MC	290.90	290.90
upside (draw back)	-27.09%	-2.52%

Click on to enlarge

Supply: Writer’s calculations

So ASUR inventory appears to be fairly richly valued to this point – at about 25-30% to the business’s norms with no premium.

Everybody decides for themselves whether or not they’re prepared to pay this premium. Personally, I’m not prepared in the present day. Sure, ASUR will possible beat consensus on its Q1 2023 report [May 8, 2023 – post-market]. However the basic upside potential appears restricted in my view.

Abstract Thesis

Asure Software program’s spectacular progress over the previous yr and robust monetary efficiency make it seem like a compelling funding alternative. With a year-to-date progress of over 51% and beating EPS consensus for the final 4 quarters, the corporate has proven constant progress and [adjusted] profitability. Moreover, Asure Software program’s recurring income of 92% and 126% bookings progress in FY2022, together with vital EBITDA margin enlargement projected for FY2023 [+823 basis points], recommend a promising future for the corporate. I see a transparent discrepancy in EPS projections for Q1 FY2023 and precise seasonality – if the corporate can efficiently switch EBITDA progress to EPS progress this yr, it may doubtlessly exceed the already richly estimated FY2023 EPS progress of 96.67%. That is very true for the upcoming quarter’s projections, which suggest no seasonal impact on ASUR’s EPS.

Sadly, ASUR inventory is presently richly valued, at about 25-30% in comparison with the business’s norms. So I fee Asure Software program as a powerful Maintain, indicating extra bullish than bearish sentiment; the corporate’s overvaluation restricts a Purchase score this time.

As all the time, your feedback are welcome! Thanks for studying!