In this week’s video insight, David Buckland, CEO of Montgomery, and Sean Sequeira, Chief Investment Officer of Australian Eagle Asset Management, discuss the investment landscape surrounding Altium (ASX:ALU). The discussion delves into Altium’s historical performance, its emphasis on quality, and its ambitious growth aspirations. Through an exploration of Altium’s positioning, management consistency, and recent achievements, this discussion underscores the significance of these factors in evaluating the company’s investment potential.

Transcript:

David:

Hi I’m David Buckland, and welcome to this week’s video insight.

Today, I’m, being accompanied by Sean Sequeira, who’s the chief investment officer of Australian Eagle Asset Management. We’re now halfway through the reporting season for the year to June 2023. And I thought today, what we might do is something that’s a little educational.

Today, Sean is going to run with, Altium (ASX:ALU) and the Altium share price, for context over recent years is traded between about 24 and 48 dollars. And today, it’s at the higher end of that range, but I just thought today could be a little educational, Sean.

Sean:

Thank you, David. And, yeah, what I did, want to do today was, is kind of give you an idea of how we view stocks in, relative to their history, and why we think quality matters. And this is a perfect example. We have one stock. That is not necessarily cheap.

However, they have a very, very good market position, being the invest at what they do in the world, as well as a management, which has been consistent over many years in identifying what their aspirations are for the company and sticking to their growth targets each year, as well as, maintaining a long-term growth target. And on top of that where they want to strategically be within their market.

Those things that, we look at in terms of quality, accumulate to give the company a higher rating in terms of how we view that versus other companies. You might have other companies that have the same earnings, but you won’t value them as highly because they don’t have the same history, the same consistency, as well as the same potential outlook. The outlook for Altium is to double earnings over the next three years.

David:

And revenue Sean as well.

Sean:

As well as revenue. So, this is not a cost cutting exercise. It’s growth.

And on top of that, what they’ve done in the most recent reporting season that gives the market confidence that they’re going to, they will actually, achieve their targets is that they attained a very large contract with a very, very large, circuit or a chip designer in Japan and that gives the company a lot of credibility.

When large companies take large contracts from a company, it gives that, the seller a lot of credibility because very large companies can choose anything in the world. And they choose this company. It means that the product is of high quality. And they’re the things that we’ll assess to determine whether the company is of high quality and whether they have any credibility in attaining their long-term targets. And in doing so, means the growth rates are very high, and beyond that, it puts them in a very, very significant strategic position to be able to be almost like the hub of the circuit design, or the, the electronics design industry, which is a growth industry in itself. So, it’s like a network effect and the value of those of those earnings. It can potentially grow, beyond their initial aspirational targets.

David:

Ladies and gentlemen, you’ve heard it from Sean.

Clearly, Altium, has very, very, exciting aspirational targets to double their revenue line and their Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) line over fiscal 26 relative to fiscal 23, so over three years. And there aren’t a lot of Australian companies that can say that with any sense of confidence.

So, let’s watch this right and see if it does break out of that 24-to-48-dollar range that’s been in over recent years. In short, thanks so much for that little educational piece.

The Montgomery Fund and The Montgomery [Private] Fund own shares in Altium. This video was prepared 24 August 2023 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade in Altium you should seek financial advice.