Under the Spotlight AUS: Hansen Technologies (HSN)

Managing the details of thousands of customers and sorting out their bills quickly gets overwhelming. Mistakes can be costly, so companies use software systems to reduce inaccuracies. These systems become a central part of their operations – so it’s important to find the right one. 

It took Hansen Technologies ($HSN) some time before finding its path to selling software-based solutions for billing, customer management, and data management. Ken Hansen initially started a business that backed up and stored computer tapes for businesses in 1971, long before personal computers and the internet became the backbone of industry.  

When Andrew Hansen joined his father’s company in 1990, it was a small venture that wrote software for Telecom Australia’s (now Telstra) billing system. With only one main customer and no intellectual property (IP), Andrew was looking for new opportunities for the company when the emerging trend of deregulation caught his eye. The end of monopolies and a wave of privatisations in many sectors meant that firms would need to cater to customer choice. With competition, they would have to up their game.

All systems go 

Hansen Technologies serves two main sectors: energy & utilities, and communications. Many of these firms were spun out of large state-owned enterprises that had built internal billing systems; Hansen was ready to offer a replacement for those legacy systems. Demand grew towards the end of the 1990s and established a strong base for its ASX listing in 2000. 

To their advantage, Hansen provides a product that comes with high switching costs, to businesses that operate in a slow moving landscape. Their average customer relationship lasts over ten years and the churn rate is below 2%. They serve over 600 clients in more than 80 countries. Daily operations impact 62 million end customers through energy & utility clients, and the team processes over six million telecom orders.

HSN has weathered the recent stock market volatility relatively well and is one of the few profitable smaller companies. Its revenue is evenly split between energy & utilities with $143.1m and communications with $147.4m in FY22. But growth for the last year was only 3.4%, well below the compound average growth rate (CAGR) of 12.2% since 2016. Hansen’s operations have been quite stable over the years, but many investors are concerned about its low rate of organic growth. 

Sticking point

Hansen’s growth tends to mirror the general state of the economy; increases are usually the result of acquisitions. In 2017, buying Enoro – the Nordic market leader in customer information systems and meter data management for the energy sector – strengthened Hansen’s presence in Europe. The takeover of catalogue software firm Sigma Systems in May 2019 was their latest major deal.

The company is still examining new opportunities that could complement their expertise, but so far nothing meets their selection criteria. Hansen’s share price has not yet recovered from the September 2021 news that a takeover bid by private equity group BGH Capital collapsed. With these usual sources of additional growth being slowed, the large number of employees is putting pressure on the company’s margins. 

There are also unrecovered revenues and cost inflation adding to these concerns. Hansen is targeting a margin of at least 30% for earnings before income, taxes, depreciation and amortisation (EBITDA). The FY22 measure was 33.8% and amounted to $100.3m, but was only a 1.1% increase over FY21. On the other hand, the firm has managed to reduce debt from $66.6m to $28.8m over the same period.  

Top billing

Hansen’s future will largely be driven by demand for digitalisation. Their offerings to communications and media clients include upgrades to 5G, IoT and integration of cloud computing services. They aim to help utilities companies provide more personalised experiences and shift away from large centralised resources to distributed systems.

Hansen’s largest win has been a US$25m contract from Exelon Corporation ($EXC), a major utility provider in the U.S. Closer to home, Energy Queensland signed for a $45m upgrade to tailored customer information software. 

It remains to be seen whether these deals will be enough to boost revenues. Will ‘slow and steady’ keep Hansen in the race, or does this Aussie tech company need to find the momentum to scale rapidly?

This does not constitute financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.