A quick note on a Japanese Appfolio
A sticky Real Estate SaaS company that could trade at 10.5x Normalised P/E next year...
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I’m trying something different as I tinker with this platform. This will be a short note and an idea on a trade, which could turn out to be something more interesting as time goes on…
TLDR: Real Estate SaaS Company down on a temporary issue. Should be trading at 10.5x P/E on a normalized basis once the results roll over.
There’s a company that bombed on earnings recently and went down 30% at the bottom (such is the world of micro-cap land in Japan). Up a bit since but nowhere near where it was before. I think the earnings reaction was too harsh for what should be a positive for the longer term - and therein lies the opportunity. The company is Property Data Bank $4389
Market Cap: 7 billion Yen
P/E: 27x*
ROCE: 18.5%
5-year Revenue CAGR: 18%
5-year EBIT CAGR: 28%
The business is a Real Estate Asset Management ERP used to manage corporate properties throughout its life cycle. I am told that Appfolio APPF 0.00%↑ is a similar company in the US.
Property Data Bank shares similar traits with APPF as far as I can tell and I like the business (albeit not as good). They are owner-operated (Founder/Chairman owns 9%), have a very sticky platform that’s almost impossible to churn from (Monthly revenue churn of 0.27%), and customers become increasingly reliant on them as they involve more and more of the relevant stakeholders to use the platform. (read: add-on services). This has also led them to amass a huge repository of property-related data.
It’s also got a formidable position in the property market with >50% of J-REITS as customers and serves well-known corporations (like Shiseido) to help manage their corporate assets. I should add, that 70% of the top 15 railroad networks also are customers.
It has a mix of implementation, which are non-recurring, and subscription revenues. The split is about 50/50. This is important to remember for the next bit. Like a typical software company though, they’re profitable and have been since its 3rd year after it was founded. Usually in the >20% for operating margins these days.