Rising Compliance Burdens Will Constrain Utilities And Telecom Expansion

Key Takeaways

• Stricter regulations and rapid technological changes are driving up compliance and R&D costs, squeezing operational margins and challenging long-term profitability.
  
• Reliance on volatile contracts and upfront licensing, along with growing competition, threatens revenue stability and weakens market positioning.
  
• Cloud adoption, product innovation, and low churn bolster recurring revenue stability, while modernization trends and expansion efforts position Hansen for resilient, long-term growth.

Catalysts

Engages in the development, integration, and support of billing systems software for the energy, utilities, communications, and media sectors.

• Intensifying regulatory complexity and increasingly strict data sovereignty requirements globally are expected to significantly raise compliance costs and slow Hansen Technologies' market expansion, putting sustained pressure on operational margins and risking earnings growth over the long term.
  
• The accelerating pace of technological change threatens to render portions of Hansen's legacy software offering obsolete, which will force continual, increased reinvestment in research and development and erode margins, with a risk of lowering the company's competitive differentiation and future profitability.
  
• Heavy exposure to large, lumpy contracts and a customer base concentrated in major utility and telecom providers presents considerable contract renewal risk; delays in project implementations and renewal cycles, as evidenced by recent slippage into future periods, threaten recurring revenue and medium-term cash flow stability.
  
• Reliance on upfront license revenues, which remain volatile and dependent on client pricing and contract choices, creates unpredictable earnings and weakens the quality of revenues, making future periods vulnerable to sudden declines in top-line growth and EBITDA.
  
• Larger and more sophisticated global software vendors are expected to increase their focus on the utilities and telecom billing space, putting substantial pressure on Hansen's pricing power and market share, likely resulting in sustained revenue growth headwinds and margin compression.

Hansen Technologies Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Hansen Technologies compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Hansen Technologies's revenue will grow by 6.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.0% today to 12.9% in 3 years time.
• The bearish analysts expect earnings to reach A$56.2 million (and earnings per share of A$0.27) by about July 2028, up from A$3.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 22.5x on those 2028 earnings, down from 348.3x today. This future PE is lower than the current PE for the AU Software industry at 73.4x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.07%, as per the Simply Wall St company report.

Hansen Technologies Future Earnings Per Share Growth

Risks

• Hansen Technologies benefits from global secular trends such as the digital transformation and modernization of utility and telecommunications systems, which is driving replacement of legacy platforms and strong demand for its advanced billing and customer management solutions, supporting both revenue growth and higher recurring earnings.
  
• The transition to cloud-based and SaaS models is gaining momentum, with many clients migrating from on-premise systems, which will likely provide Hansen with higher-margin, predictable subscription revenue that underpins improved net margins and long-term earnings stability.
  
• The successful turnaround of Powercloud, including cost restructuring and its entry into a German market undergoing mandatory smart meter upgrades by 2030, positions Hansen to capitalize on a large, growing addressable market and increase its energy vertical revenue over the coming years.
  
• Very low customer churn, multi-year contract wins (e.g., the $50 million Virgin Media O2 deal), expansion into new geographies and verticals, and a diversified client base reduce revenue volatility and enhance visibility, making earnings more resilient to isolated market shocks.
  
• Ongoing investments in R&D and AI-driven solutions, such as the Dial AI virtual agent, indicate management's commitment to product innovation, helping to drive cross-sell/upsell opportunities and maintain Hansen's competitive edge, which supports long-term growth in earnings and recurring revenue.

Valuation

• The assumed bearish price target for Hansen Technologies is A$4.91, which represents two standard deviations below the consensus price target of A$6.46. This valuation is based on what can be assumed as the expectations of Hansen Technologies's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$7.3, and the most bearish reporting a price target of just A$4.6.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be A$436.5 million, earnings will come to A$56.2 million, and it would be trading on a PE ratio of 22.5x, assuming you use a discount rate of 8.1%.
• Given the current share price of A$6.01, the bearish analyst price target of A$4.91 is 22.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.