Offshore

⁠Dimitry Nakhla | Babylon Capital®
A quality valuation analysis on $MANH 🧘🏽‍♂️

•NTM P/E Ratio: 38.98x
•10-Year Mean: 49.95x

•NTM FCF Yield: 2.89%
•10-Year Mean: 2.66%

As you can see, $MANH appears to be trading below fair value

Going forward, investors can receive ~28% MORE in earnings per share & ~8% MORE in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $MANH is a great business

BALANCE SHEET✅
•Cash & Short-Term Inv: $266.23M
•Long-Term Debt: $0

$MANH has a great balance sheet

RETURN ON CAPITAL✅
•2019: 66.3%
•2020: 46.2%
•2021: 49.1%
•2022: 63.4%
•2023: 70.9%
•2024: 74.6%

RETURN ON EQUITY✅
•2019: 59.3%
•2020: 48.3%
•2021: 47.1%
•2022: 54.0%
•2023: 69.9%
•2024: 75.6%

$MANH has strong return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2014: $492.10M
•2024: $1,042.35M
•CAGR: 7.79%

FREE CASH FLOW✅
•2014: $84.75M
•2024: $286.33M
•CAGR: 12.94%

NORMALIZED EPS✅
•2014: $1.16
•2024: $4.72
•CAGR: 15.06%

SHARE BUYBACKS✅
•2014 Shares Outstanding: 75.84M
•LTM Shares Outstanding: 62.18M

By reducing its shares outstanding -18% $MANH increased its EPS (assuming 0 growth) by 22%

MARGINS✅
•LTM Gross Margins: 54.8%
•LTM Operating Margins: 25.1%
•LTM Net Income Margins: 20.9%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~28% MORE in EPS & ~8% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $MANH has to grow earnings at a 19.49% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be less than the (19.49%) required growth rate:

2025E: $4.56 (-3.4% YoY)
2026E: $5.06 (10.9% YoY)
2027E: $5.85 (15.7% YoY)

$MANH has a great track record of meeting analyst estimates ~2 years out, but let’s assume $MANH ends 2027 with $5.85 in EPS & see its CAGR potential assuming different multiples

35x P/E: $204.75💵 … ~5.0% CAGR

34x P/E: $198.90💵 … ~4.0% CAGR

33x P/E: $193.05💵 … ~2.9% CAGR

32x P/E: $187.20💵 … ~1.8% CAGR

We would have to assume 40x to achieve 10% CAGR, a substantial premium relative to $MANH growth rate

Take a look at $MANH revenue & EPS decline from 2016-2019 & you’ll notice its multiple contracted reaching as low as ~21x

For 2025, revenue is expected to grow at 2% while EPS is expected to decline (we can reasonably assume $MANH multiple may contract further (e.g. 38x to 33x)

Also, we should demand a greater margin of safety & not rely on a multiple that was reflected $MANH 15% EPS CAGR in the past 10 years

$MANH services (50% of total revenue) revenue growth has slowed while cloud subscriptions (32% of total revenue) growth is attractive, growing 32% YoY

Cloud subscription revenue will likely outpace services within 5 years, yet $MANH may enter a choppy period in the meantime

I’ll start to get interested in $MANH closer to $150💵 (15% below $178💵) where I can expect ~10% CAGR assuming 34x
___

𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬[...]

1 view13:49