Is ELMO Software Limited having a resilient business model?

Team Veye | 09 Apr 2020 ASX - ELO
Is ELMO Software Limited having a resilient business model?

ELMO Software Limited (ASX: ELO)

Third Quarter Cash Report – Record Q3 cash receipts and well capitalised

ELMO Software Limited (ASX: ELO) (“ELMO”, or the “Company”) on 8 April 2020 provided its Third Quarter Cash Report and business update to the market.

(Chart source: TradingView)

Highlights 

  • Over the last twelve months to 31 March 2020 (LTM), ELMO has collected $56.2m of cash receipts, growth of 42.3% on the previous LTM (12 months to 31 March 2019) 
  • Recorded the largest Q3 cash receipts in ELMO’s history of $13.3m, up 39.4% on Q3 FY19 
  • Closing cash balance of $69.8m with no debt at 31 March 2020 ensuring ELMO remains well capitalised to manage through the current COVID-19 pandemic and also to take advantage of acquisition opportunities
  • Completed the acquisition of Vocam in February 2020, a leader in HR and safety video e-learning content with offices in Australia and the United Kingdom 
  • Successful company-wide shift to remote working since 23 March 2020 with no disruption to our customers or operations proving the resilience of our business model

 

(Graphic Source – Company Reports)

  • FY20 revenue and pro forma EBITDA guidance issued on 18 March 2020 is re-affirmed 
  • ELMO is well placed to benefit from the anticipated acceleration in the adoption of cloud-based business tools including HR technology throughout the ANZ region and beyond (Data Source – Company Reports)

 

Veye’s Take

ELMO had continued momentum from its strong first-half with its highest third quarter cash collection in ELMO’s history of $13.3m, an increase of 39.4% when compared to 3Q FY19. The company remains well capitalised holding $69.8m of cash and is debt free. The combination of this cash balance and the high level of recurrent subscription revenue proves the resilience of its business model. ELMO is well placed to navigate the disruption in business caused by the COVID-19 pandemic. After achieving its target at $7.30 and also crossing its next resistance at $7.50 the stock fell sharply in conjunction with the global markets. It was able to protect its support near $4 where it had a base formation and started making inverse head & shoulder pattern. The stock can face strong resistance at $6.80 area. If it manages to stay above it then it can have the potential of its way opening to a very good upside. Veye maintains a "Hold" on “ELMO Software Ltd” at the current price of $6.03

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