The CEO of small cap technology company Microlise (SAAS:AIM) has big ambitions. With this in mind Shares recently took the opportunity to sit down with the man in question Nadeem Raza.
Raza has been with the company since 1987 and became chief executive after he led a management buyout in 2008. The company floated on AIM in July 2021 and Raza owns half of the company.
For the uninitiated, Microlise provides a suite of fleet management software to large UK HGV (heavy goods vehicles) fleets, where it has built a market leading 58% share of fleets with more than 500 vehicles.
Clients include the top 15 food retailers, third party logistics providers like DHL as well as leading original manufacturing equipment makers like JCB.
Microlise typically sells five-year contracts which provide long term revenue visibility while the churn rate among customers is under 1% a year. Selling multiple products into clients makes the company’s products sticker and difficult to substitute.
The company has a track record of growing recurring revenue which, today makes up around two-thirds of total revenue.
The organic growth opportunity is significant given the potential to upsell more of the firm’s product suite. Raza told Shares that if all customers signed up for all the company’s software modules, ARR (annual recurring revenues) could reach £250 million.
In addition, there is an opportunity for Microlise to increase its share of wallet among fleets with less than 500 vehicles, where its market share is around 26%.
The company also operates in France, Australia and New Zealand and has an active acquisition strategy to augment organic growth. It has made 11 acquisitions over the last five years.
The business achieves high gross margins in the mid-60s in percentage terms and EBITDA (earnings before interest, tax, depreciation, and amortisation) margins on sales of around 14%.
In the medium term the company believes it can achieve EBITDA margins of between 15% and 20%, with a stretch target of 25%.
Stripping out intangibles and goodwill the business makes an operating profit return on tangible capital of 54%.
The company has no debts and has around £11 million of cash on the balance sheet. It pays a dividend of 1.8p per share, covered two times by diluted earnings per share.
Based on Canaccord Genuity estimates the shares trade on a forward 2025 PE (price to earnings) ratio of 27 times, falling to 22 times in 2026.
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