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Could Today’s Results End the Downtrend for Citadel (ASX: CGL)?

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Citadel (ASX: CGL) announced results that sat in the middle of guidance today, showing an acceleration in SAAS growth over the past year. The company delivered revenue of $99.2m, as compared to guidance of $97-104m. EBITDA came in at $23.3m, at the top half of their target band, while NPAT was $10.9m. SAAS revenue has increased from 26% to 35% of the total revenue pool, highlighting rising earnings quality at the tech company. The company has given an outlook for consistent margins and low double-digit revenue growth, which did not surprise a market that prices the company at barely 20 times earnings.


Citadel’s annual results today were roughly in line with market expectations (Credit: Citadel)

Citadel sold off almost 40% in May, after downgrading revenue, earnings and margins. The cause was twofold, with poor trading conditions and slower than expected implementation of their strategy both contributing to the poor result. They announced a sudden slowdown in customer spend, in addition to a slowdown in their traditional consulting business.

The firm provides a digital safety platform, where they work with Crime Stoppers and digitises crime reporting. They also improve safety through advanced analytics, artificial intelligence and cognitive services. Citadel’s primary business is across the defence, national security, health and other enterprises segments of the market. This allows the company to avoid client concentration risk, while also not being too heavily exposed to a downturn in one specific industry. They also have competitive moats in their core businesses, one example being having the largest laboratory information system, which gives them a greater capability to outshine companies that compete with the health segment of their business.

Citadel trades on a PE of 20.2 and an EV/ EBITDA multiple of 9.1. These are attractive multiples for a tech company, and do not yet reflect the SAAS side of their business, since Citadel is still in the process of transitioning its business model. There are still risks with their current strategy, but the shares could rally strongly if the company is ultimately successful in executing its strategy.




This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978) (“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

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ASR has no position in any of the stocks mentioned.

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