- Software-as-a-service reaches new sectors.
- Defence hardware is a valuable niche in today's world.
It is always good to invest in situations where there is a visibly strong macro backdrop. Our stocks this week, while working in very different spheres (construction and defence), could deliver double-digit total shareholder return (TSR). Both illustrate the power of operational gearing which offers scope to drive those already attractive returns higher still.
Eleco (ELCO) is a business offering software as a service (SaaS) solutions focused on project management in the construction and building operations sectors. The construction industry has been slow to adopt new technology, but this is gradually changing. Larger contractors are starting to realise that cloud-based software can drive significant productivity and efficiency improvements. While the sector’s historically low margins might not drastically improve, there is still potential for growth as larger (and eventually smaller) contractors increasingly adopt software tools from companies like Eleco. We estimate the potential for 15 per cent annual total shareholder return (TSR), and given the company’s naturally high operational gearing, there could be room for more.
