Aspen Technology, Inc.

AZPN Details

Aspen Technology, Inc. (NASDAQ: AZPN) offers integrated asset optimization software solutions focused on asset design, operations, and maintenance in complex industrial environments. Its operating segments are 1) Subscription and Software, which provides licensing of process optimization and asset performance management software solutions and other allied support services, and 2) Services and Other, which generate revenue from professional services, training, and other services. As of October 11, 2021, the company's market capitalization stood at USD 9.49 billion.

Inorganic Growth Initiatives: On October 11, 2021, AZPN signed an agreement with Emerson Electric Co, an engineering services provider, to merge the latter's industrial software businesses – OSI Inc. and the Geological Simulation Software business with AZPN to create a new company (new AspenTech). Under the terms of the agreement, Emerson will make a cash payment of USD 6.0 billion to AZPN's shareholders to receive a 55% stake in new AspenTech (AZPN shareholders will own the remaining 45%). AZPN shareholders will also receive 0.42 common shares in new AspenTech for each share of AZPN held, resulting in a total consideration of ~USD 160 per AZPN share and equity value of ~USD 11 billion prior synergies. New AspenTech's industrial software portfolio will be highly differentiated, with the ability to support the entire lifecycle of complex operations across a wide range of industry verticals, with proforma FY22 revenue of USD 1.1 billion and adjusted EBITDA of ~USD 490 million.

FY21 Results: The company reported YoY growth of 18.48% in total revenues to USD 709.38 million in FY21 (ended June 30, 2021) compared to USD 598.72 million in FY20, attributable to an increase in license and maintenance revenue during the year. Net income for FY21 increased to USD 319.80 million from USD 229.67 million in FY20. As of June 30, 2021, the company had cash & cash equivalents of USD 379.85 million and total debt of USD 293.16 million.

Key Risks: As of June 30, 2021, AZPN conducts business in 35 countries. Revenue from clients outside the US accounts for a significant portion of its total revenue. As a result, changes in the global economic and regulatory landscape in the countries where the company operates could negatively impact its financial performance. In addition, about 12.6% of AZPN's revenues were in currencies other than USD in FY21, thus exposing it to exchange rate fluctuations.

Outlook: As of Q4FY21, AZPN expects its total FY22 revenue in the range of USD 702 – 737 million, with a GAAP net income of USD 288 – 314 million. Total bookings for the year is anticipated to range between USD 766 – 819 million and a free cash flow of USD 275 – 285 million.

Valuation Methodology: EV/Sales Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

AZPN Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: AZPN's stock price has increased 25.70% in the past month and is currently leaning towards the higher band of its 52-week range of USD 108.15 to USD 162.56. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 82.97. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 133.45. Considering the significant uptick in the stock price, we believe the current price adequately reflects the strong business fundamentals and recommend a "Sell" rating on the stock at the closing price of USD 159.00, up 12.33% as of October 11, 2021.

* All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV. 

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