This share price of this stock has surged to a record high and the positive price momentum may not be over.
The company will be reporting its second-quarter financial results (fiscal year-end is Oct. 31) after the market closes on Thursday, and, if it delivers strong financial results and management provides a positive outlook, this could boost the share price even higher.
The stock I am referring to is Enghouse Systems Ltd.(ENGH-T).
Enghouse Systems
$65
Downside
support
55
45
35
25
15
2017
2018
2019
2020
THE GLOBE AND MAIL, SOURCE: BARCHART
Enghouse Systems
$65
Downside
support
55
45
35
25
15
2017
2018
2019
2020
THE GLOBE AND MAIL, SOURCE: BARCHART
Enghouse Systems
$65
Downside
support
55
45
35
25
15
2017
2018
2019
2020
THE GLOBE AND MAIL, SOURCE: BARCHART
Based in Markham, Ont., the company is a software provider serving the financial, telecom, utilities, and government sectors. The company has an attractive business model with 57 per cent of its total revenue recurring and relatively predictable.
Management is focused on growth - organic, or internal, as well as acquisition growth.
In fiscal 2019, the company made six acquisitions. Most recently, on Dec. 31, 2019, the company acquired Dialogic Group Inc., expanding its video conferencing platform. The company generates strong cash flows and has a healthy balance sheet to fund its growth.
The company remains committed to returning capital to its shareholders. In March, management announced a 23-per-cent dividend hike, lifting its quarterly dividend to 13.5 cents per share from 11 cents per share. Enghouse has announced double-digit dividend increases every year for the past 12 years. In addition, management announced its plan to renew its share buyback program in late April.
On the first-quarter earnings call held in March, CEO Steve Sadler commented on the potential impact from COVID-19, “Enghouse does not have much impact to date on the COVID-19, but there could be a global business develop impact. We are a distributed organization in terms of premises and staffing, therefore, limited concentration. A lot of our staff have worked from home, so it's not foreign for us to do so. We have a high mix of recurring revenue with communication products. Possibly, we could deploy capital and acquisitions at lower valuations. Understanding opportunities and risk is key at this time. Maybe demand for video and contact centers will increase as a result of this virus. We do have a small presence in Italy, but not in other high-risk geographies. In summary, we believe our exposure is limited beyond an overall global impact.”
On June 4, the company may report solid second-quarter financial results given 1) its high recurring revenues 2) demand for its video conferencing and contact centers and 3) potential integration benefits realized from its recent acquisition of Dialogic.
According to Refinitiv, the Street is anticipating the company to report total revenue of $125-million, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $34.5-million, and earnings per share of 29 cents.
Management will be hosting an earnings call on Friday.
From a technical perspective, the share price could extend its rally to the $70 level. Should the share price pullback, there is strong support around $55.
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Jennifer Dowty