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Enghouse Systems: Bullish In Its Business, Bearish In Its Stock Price

Sherif Samy profile picture
Sherif Samy


  • Enghouse Systems has a strong balance sheet with little debt.
  • The company grows by acquiring smaller firms, and so far its acquisitions have been hits (such as Vidyo acquired in early 2019).
  • A lot of workers are now working from home and this is going to increase the demand for Enghouse Systems's products.
  • I anticipate a lot of price fluctuations in this stock which means there are opportunities to buy on the downtrend.

Enghouse Systems Logo

Enghouse Systems (OTCPK:EGHSF) is a software company listed on the Toronto Stock Exchange. It comprises of 3 distinct divisions: Enghouse Interactive, Enghouse Networks, and Enghouse Transportation. Each division focuses on a different aspect of the business.

Despite the short term macroeconomic risks, I believe this firm is in a good position for growth. The company has a strong balance sheet to weather the current crisis and its technology has shown to be in demand.

Pre-COVID19: Its Balance Sheet was Strong with Little Debt

In the last 4 years, Enghouse Systems had been maintaining an average current ratio of about 1.5 to 1:

(Source: Enghouse Systems Financials)

Its working capital at the end of Jan 31, 2020 was approximately $85.4 million. This was a sharp drop of $60 million from the prior year but the working capital is still reasonably healthy given it still represents 14.5% of total assets of the company:

(Source: Enghouse Systems Financials)

In looking at its long term debts, its long term liabilities is less than 10% of total assets. This shows immense flexibility if the firm ever needs to take on more debt:

(Source: Enghouse Systems Financials)

Its dividend payout ratio remains fairly healthy. In its most recent quarter, its dividend ratio was about 37.4%, a drop of 2.8% from a quarter ago:

(Source: Enghouse Systems Q1-2020 Financials)

In looking at its F score where it measures the company's financial strength, in 2019, the score came to a 5 where the prior year was a 7:

(Source: Enghouse Systems Financials)

There was a drop in the score mainly because of a slight erosion in the gross margins, an increase in the issuance of new shares, and its current ratio had fallen from the prior year. These are likely a result of the 5 acquisitions it made in the past

This article was written by

Sherif Samy profile picture
I studied Economics and Accounting at Wilfrid Laurier University, and I have earned designations in Certified Management Accounting (CMA CPA) and Certified Alternative Investment Analysts (CAIA).  I typically look for companies with above average dividend yields, under valued companies, or struggling companies with turn around potential.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (3)

Increase in the issuance of new shares...really! diluted shares stready in the last 5 years. This company does not need to rise capital, self suficient. 193M of liquidities in Dec 2019 and 150M a year later after 100M in acquisitions. Another 52M spent on Dialogic in January and back to 116M of liquidities in Q1. Some other conferencing players carries debt and are more sensible to default payments from their customers. My advise is to not focus on share price volatility for Enghouse, they have always execute well.
I don’t think a significant dip in the share price is coming. Tech has held up incredibly well in this stockmarket crash, and for good reason. I think their business lines may actually benefit from the video and teleconferencing trends that will now become more pronounced.
Sherif Samy profile picture
The stock has held up pretty well but with the stock market being what it is today. I think there might be some panic selling which will indirectly lead to the stock price dropping. So I'm bearish on the stock price but at the same time this presents buying opportunities.
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