Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Aconex Is Set To Outperform With Strong Penetration In Collaboration Solutions Space In Construction Industry

Summary

Provides exposure to a market-leading vertical SaaS product in the construction industry.

Its stock price expected to multiply over the next few quarters with strong possibility of positive EPS over next 6-12 months.

Significant potential with global construction collaboration software market to be US$5.6bn by 2018.

Aconex Limited (ACX)

Business description

Aconex (ACX) listed in Australia stock exchange provides a Software as a Service (SAAS) cloud platform for collaboration on construction projects. Its solution covers the full asset lifecycle across residential and commercial, government and infrastructure and energy and resources segments and has been implemented in 70 countries. This Australia based company completes R&D, sales and support functions and outsources infrastructure such as data centers.

Fundamentals (Financial year end 30th June)

Aconex (ACX) is an information management tool for the construction industry allowing the current version of each document to be used project wide and capturing all related correspondence. ACX allows greater collaboration in digital form although paper-based systems are still the incumbent vendors in majority of construction companies. This is based on multi-tenant SaaS architecture with strong mobile features that differentiates it from competitors and from other software companies.

ACX is a collaboration tool for developers and contractors and hence by their very nature, collaboration tools need widespread acceptance to be effective and once acceptance has been gained they are very difficult to switch off. ACX is differentiated from local horizontal software peers (ANZ based) in terms of targeting a single vertical to emerge as a clear product of choice within collaboration solutions space for construction industry. Aconex drives tighter collaboration across industry participants and hence it is far more likely to become standardised industry wide.

Financials

FYE - June 30th (A$ mn)

FY13

FY14

FY15

Revenue

52.3

66.2

82.4

Revenue growth (%)

17.9

26.7

24.5

Gross Profit

36.4

48.9

61.9

Gross profit margin (%)

70%

74%

75%

Operating Profit

16.6

25

34

Operating profit margin (%)

32%

38%

41%

Total Assets

36.5

38.6

67.0

Key Value Drivers

  • Scalability - Aconex's expected sales growth are in line with marketing and R&D spend due to the self-reinforcing nature of the network but significant leverage to other costs due to the low incremental cost to serve
  • Strong network - Strong rates of sales growth can be sustained over due to the self-reinforcing nature of the product
  • Enormous growth potential - Further project and enterprise contract wins with Global infrastructure market expected to grow 6.5% per year to US$9,000bn by 2025 providing significant opportunity for cloud based collaboration technological solutions

Major Risks

  • Industry adoption of collaboration software
  • Acceleration in competition
  • Cyclical construction risk

Investment Rationale & Conclusion

Aconex (ACX) is a global market leader in construction collaboration software with strong and scalable multi-tenant SaaS platform. It is in early stage penetration phase with industry penetration of around 4% and hence provides scope for rapid growth. Frost and Sullivan estimates the total addressable global construction collaboration software market to be US$5.6bn providing significant opportunity for ACX. It is expected that a small number of players will dominate the space over the long-term, given the collaborative nature of the product. Aconex is one of the largest and best resourced of these players and it is expected that it become a much larger global business.

Aconex provides a collaboration product that engages multiple industry participants naturally builds a network and hence provide a strong competitive advantage. While servicing a vertical market like construction means that within a few short years every major

developer, construction firm, contract, engineer and architect in Australia has used Aconex's product and has scope for rapid expansion and margin contribution from regions outside ANZ including America, EMEA and Asia. Aconex's value proposition is strong for paying users but also for non-paying users who get increased automation and accountability for free.

Aconex (ACX) currently trades at A$3.84 (closing price as on 5th Feb) with its 52 week range of A$1.77 - A$5.70 (GAAP EPS ttm of -0.25) and looks attractive with strong potential upside over medium to long-term as outlined below -

  • Provides exposure to a market-leading vertical SaaS product in the construction industry
  • Robust technology platform with strong scale of sales and development operations superior to competitors' with global list of clients resulting in ACX emerging as the only truly global competitor
  • New project wins, conversion of clients to enterprise agreements, take-up of optional modules and monetisation of the huge non-paying user base
  • Capital light and highly cash generative despite significant reinvestment which augurs well for sustaining strong double-digit sales growth beyond the next decade on its highly scalable platform
  • Its stock price expected to multiply over the next few quarters with strong possibility of positive EPS in FY16 and FY17

Supporting Documents

  1. FY15ResultsWebcastDeck.pdf

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.

Additional disclosure: Sources: Company Annual Reports/Half yearly reports, Company Press Releases, Company Financials, Investor presentations, Frost and Sullivan ,Reuters, Yahoo Finance), Aconex is listed in Australia stock exchange with ACX ticker