M&A likely on the agenda for Hansen Technologies say analysts

Hansen became subject to a proposed buyout by BGH Capital in 2021, but the private equity firm walked away from the target after initially offering $1.3bn or $6.50 per share.

Analysts at UBS believe that Hansen Technologies will get involved in mergers and acquisitions this year, leading to gains in its share price.

UBS said in a research note that the company that provides billing systems software for the energy and communications sectors has a robust balance sheet that can support mergers and acquisitions, and M&A has historically been a driver of Hansen’s share price.

“Our price target includes $1 per share to account for likely upcoming M&A, which, in our view, is not being factored into the current share price,” the analysts said.

Shares are currently trading at about $5.02.

Hansen became subject to a proposed buyout by BGH Capital in 2021, but the private equity firm walked away from the target after initially offering $1.3bn or $6.50 per share.

In a scenario where Hansen does embark on M&A, UBS says this could add between 35c and $1.70 per share to its valuation.

“M&A has been a major part of Hansen’s long-term earnings growth and the company has a strong track record of acquisition integration.”

M&A could boost the value of Hansen’s shares by between 6 and 26 per cent, the analysts say.

There has been a lull in Hansen M&A over the past three years, given Covid-19 travel restrictions and boom in software tech valuation multiples.

However, both of these factors have now largely normalised.

“This should set the stage for Hansen to resume its bolt-on M&A program within the global billing software industry, which remains highly fragmented.”

Since its 2022 financial year result, Hansen shares have underperformed the ASX Small Ordinaries index by 20 per cent, driven by fears of earnings pressure this financial year from unrecovered cost inflation.

UBS has forecast earnings before interest, tax, depreciation and amortisation for this financial year to fall 2 per cent to $98m, with the earnings weakness isolated to the first half of the financial year.

“We expect Hansen to return to earnings growth in the second half, and forecast 13 per cent EBITDA growth versus the previous corresponding period.”

“(The) improved earnings growth outlook through the second half of the financial year is driven by the lagged benefits of CPI-linked price increases, a strong number of recent contract wins and a reduction in Hansen employee churn costs as tech labour tightness normalises.”