NEMKY - Nemetschek: A Bullish Case For A Long-Term Holding (Rating Upgrade)

2024-06-11 21:02:10 ET

Summary

• Nemetschek rated as a buy due to successful transition to increased annual recurring revenues, good Q1 results in 2024, and acquisition of GoCanvas.
• Nemetschek's revenue growth is improving with a focus on recurring revenues, showing resilience and predictability in its business model.
• The acquisition of GoCanvas strengthens Nemetschek's Build segment, positioning the company for double-digit revenue growth and long-term value creation.
• I rate the stock as a buy given the very good management's execution to deliver more stable double-digit revenue growth.

I rate Nemetschek ( OTCPK:NEMTF )(NEMKY) as a buy as the company is making a successful transition in increasing the participation of the annual recurring revenues ((ARR)) as expected, good first quarter results in 2024, a reduction of the interest rates by the European Central Bank (ECB), and the acquisition of GoCanvas, which will enable Nemetschek to reinforce one of its most important divisions and solidify double-digit revenue growth for the next few years, considering that those revenues will have a higher component of recurrency. I've written about NEM in a previous article in December 2023 with a "hold" rating, as my conservative assumptions gave me an intrinsic value of 86 euros per share when the stock price was around 77 euros per share. Now, the stock price is around 95 euros per share, as the market is gaining more confidence in the double-digit growth of the company's growth prospects after the acquisition of GoCanvas and the very good management execution. CEO Yves Padrines took over in 2022 and is demonstrating very good execution and delivering very good metrics, while uncertainties associated with the industry are dissipating. I am holding NEM at a cost of 60 euros per share with a weight of 25% of my entire portfolio, so I was convinced about its long-term prospects even when the market was pessimistic about its industry in the years 2021, 2022, and 2023. If you want to learn more about NEM's qualitative aspects, you should read my previous article to understand the company's competitive advantages and business model.

Context

NEM's revenue growth was 9.4% as of March 2024 YoY, whereas net income and EPS grew 17.4% YoY and 13.3% YoY, respectively, in the same period, beating analysts expectations....

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