Profit, dividend up as Altium vows to defend ATO dispute

Software group Altium boosts its final dividend after recording strong growth in the US and says it will ‘vigorously defend’ a legal dispute with the ATO.

Altium’s software can be used to develop semiconductors.

Shares in multinational software giant Altium jump more than 25 per cent after delivering a hefty profit and dividend hike.

Altium shares were trading at $46.31 just before midday on Tuesday, up more than 25 per cent from its closing share price of $36.88 on Monday.

Investors seem to have taken kindly to the company’s annual financial results, which were released late Monday after the markets close, following strong growth in the US and a declaration to ‘vigorously defend’ a multimillion dollar legal dispute with the Australian Taxation Office.

The jump in share price follows an upbeat outlook from Barrenyjoey analyst Josh Kannourakis, who upgraded the company’s stockprice to overweight with a target of $44.50, previously slated at $42.

“ALU’s success within the Enterprise segment has been a source of positive surprise for us,” he said.

“The signing of new semiconductor manufacturer clients suggest a larger addressable market and subscription pool for ALU longer-term. We also believe opportunistic M&A could accelerate ALU’s software adjacencies and further expand its TAM.”

The electronic design software company reported a drop in operating expenses which helped it lift profit after tax to $US66.3m ($AU103.6m), up 19.6 per cent from the previous year.

The ASX-listed provider grew its global subscriber base 7.5 per cent to 61,159 up from 56,912 the previous year. The uplift in subscribers saw revenue up by more than $US42m compared to the past financial year, bringing in $US263.3m.

Meanwhile, earnings before interest, taxes, depreciation and amortisation lifted by 20.3 per cent, to $US96m.

Chief executive Aram Mirkazemi was confident the company had a growing interest among global engineering communities.

“Adoption of Altium 365 continues to grow in strength, capturing the interest of the wider engineering community and providing a strong basis from which to monetise beyond PCB designers,” he said.

Altium chief executive Aram Mirkazemi.

“We are also gaining increasing traction in the enterprise market, where Altium 365 is proving to be a game-changer for our prospects of succeeding with enterprise customers.”

Altium experienced the strongest growth in the US, with its revenue from its subscriber base growing to $US92.1m, up 32.3 per cent. The company also reported strong growth in Europe, the Middle East and Africa with its US dollar and Euro-paying markets growing 19.8 per cent to $US74.5m and 23.6 per cent to $68.6m respectively.

Altium recently closed a multimillion dollar, multi-year contract with semiconductor provider Renesa Electronics, Mr Mirkazemi said.

A previously disclosed $40m payment to the ATO weighed on Altium’s result, as a dispute over a risk review continued. But Altium has made no further provision related to the legal dispute, which it intends to “vigorously defend”.

The company noted in its results that “Altium does not consider it probable that the company will be required to pay additional tax in relation to this matter” and that the company “disagrees with the ATO’s amended assessments and intends to vigorously defend its position and contest the matter through litigation proceedings”.

E&P Financial Group’s Paul Mason said Altium’s results showed the company didn’t believe it would be losing the case.

“Looks like Altium is now explicitly expecting the ATO to lose their tax case against Altium, as Altium is booking a A$40m non-current receivable from the ATO on its balance sheet,” he said.

The company performed better than initially expected, but subscriber growth was yet to impress, Mr Mason said.

“Subscriber numbers are better than our forecasts and consensus, albeit we had a low hurdle, and subscribers still require a substantial re-acceleration in order to get anywhere near their subscriber targets,” he said.

“My guess is there will initially be some support for the stock, but this is going to be mixed – the bulls will cheer loudly, but the bears will look at the working capital and lack of subscriber growth still there and be doubtful. Likely statutory upgrades from consensus but with mixed messaging.”

Altium will pay a final dividend of US29c, fully franked, up from US26c a year ago. That brings its total dividend for the year to US54c, up 14 per cent from a year earlier.