Enghouse Systems is a software and service company that develops and sells business-oriented application software.

Enghouse is headquartered in Canada and has offices in over 25 countries. The company operates in three business areas: Interactive, Networks and Transportation to address the various vertical markets. It consists of two business units: an interactive management group that provides customer interaction software (59% of 2020 sales) and an asset management group that provides operational support systems, mobile value-added service systems and data conversion systems (41%).

Geographically, the US represented 47% of total sales in 2020, followed by 13% from the UK, Europe (15%), Scandinavia (16%), Canada (5%) and other countries (4%). Enghouse Systems’ sales include hosted and maintenance services (60% of sales), software licenses (23%), professional services (14%) and hardware (3%).

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Investment data

Sales growth and market exposure

Enghouse’s solutions aim to improve customer service, increase efficiency and improve communication for banks, insurance companies, utilities, technology companies, hotel companies, etc.

The company develops communication, network and transport software for telecommunication service providers, electricity, oil and gas suppliers and transport companies. The focus is also on technology solutions that enable 5G operators to network and digital transformation.

Enghouse pursues a strategy of growth through acquisitions in both existing and new markets. The company focuses on acquiring companies with recurring sales and dealing with customer-oriented software solutions that complement existing businesses or that offer the opportunity to enter new markets.

The company prefers to invest in North America, the UK, Europe, the Nordic regions and the APAC regions. The company has a proven history of successful acquisitions and integrations and acquired Sociedade Altitude Software Sistemas e Serviços SA in December 2020 with a focus on the BPO market segment.

Enghouse’s strategy of organic growth and acquisitions has resulted in sales increasing 17% CAGR over the past decade. The company continues to invest in initiatives to convert new and existing customers to cloud-based service contracts. The company also aims to deliver next-generation networks and smart grid solutions worldwide, and is investing in the development of AI to compete in the SaaS market.

As a leading company developing enterprise software solutions for various vertical markets, Enghouse Systems benefits from its diversified product suite and global market presence. The pandemic resulted in increased demand for remote work and visual computing solutions. The company is also in a good position to sell its solutions across multiple market segments.

Dividends

Enghouse Systems has paid rising quarterly dividends for the past decade. The company has an average annual dividend yield of 1% and a relatively low payout ratio of 34%. This dividend aristocrat most recently increased its dividend by 18%, which is the thirteenth straight year that Enghouse has increased its dividend by over 10% and increased its dividend payout at an impressive 23% annual rate over the past decade.

Enghouse also approved a special dividend of $ 1.50 per common share in December 2020. The quarter ended with significant cash, no debt, and significant operating cash flow. The company continues to focus on a strong balance sheet with large cash reserves.

The company has grown steadily over the past five years in all key financial figures such as sales, EBITDA, cash on hand and dividends per share. Earnings have increased more than 13% + CAGR over the past three years.

Enghouse has ample cash for future acquisitions and has a solid track record of generating cost savings through acquisitions. The goal is to acquire businesses in the $ 5 million to $ 50 million revenue range with strong recurring revenues. With a high level of cash on hand and an experienced management team, Enghouse Systems is better positioned to implement its acquisition strategy in the near future. The company is currently focused on completing selective acquisitions in existing markets and developing new strategic software markets.

Enghouse Systems’ strategy of investing in its core competencies, making targeted acquisitions and maintaining adequate cash and a strong balance sheet should support future dividend payments. A low payout ratio also showed sufficient room for future growth.

Enghouse (ENGH) historical yield
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competition

Enghouse faces extreme competition from software companies. It competes with companies like Constellation Software Inc., Open Text Corp., Ceridian HCM Holding, The Descartes Systems Group, etc.

Increasing competition from cloud software providers also affects Enghouse Systems’ license sales. Changing industry standards and innovative cloud-based solutions are major challenges for the company. Enghouse Systems offers a strong cloud opportunity in the future.

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Bottom line

Enghouse Systems remains a solid technology company with cash generation and a long track record of acquisitions and value creation. The company’s acquisition growth strategy aims to diversify its suite of products and expand its geographic reach into new markets.

Economic factors are currently favorable to acquisitions, especially for small-cap companies. Enghouse is in a good position to benefit from improving the dynamics of interactions, networks and transportation sectors in the future.

ENGH vs TSX vs SP500
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Enghouse (ENGH) historical PE
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