IT contractor Atturra (ASX: ATA) has posted strong growth in recent years, but it has come with some complications that make it hard to value. Since Atturra’s top-line revenue continues to climb, and director alignment with shareholders is refreshingly strong, I was compelled to take a closer look at whether to buy Atturra shares.
After digging beneath the surface, I found a fair bit of nuance that I wanted to share with readers.
Atturra’s Directors Have Been Buying Atturra Shares On Market
Atturra’s board and management team are putting their money where their mouths are. Over the past few months, directors have significantly increased their stakes in the company:
- CEO Stephen Kowal bought $125k worth of shares on-market in March and April.
- Chairman Shan Kanji has been the most active buyer, purchasing $4.3 million in March and $440k in February – and nearly $40 million worth in the December placement.
- Kanji is the largest shareholder, with close to 220 million shares – over 50% of issued capital.
- Kowal holds about 5.3 million shares while one non-executive director holds 6.1 million, with just one director holding what I would consider a relatively insignificant parcel of Atturra shares.
In short, there’s strong alignment between management and shareholders – a positive sign in any company, especially one that continues to expand.
Revenue is also ‘predictable’; according to the company, at least. Around two-thirds of Atturra’s revenue is either recurring or long-term client-based, offering some visibility. It’s difficult to say just how ‘locked in’ this revenue is, though, without having access to individual customer contracts.
Revenue has grown at a compound annual growth rate (CAGR) of 35%, which would be impressive if not for what comes next.
Atturra’s Share Count Has Grown Significantly
While revenue and earnings have grown strongly in absolute terms, the per-share picture is much less flattering. Since listing in late 2021, the number of shares on issue has nearly doubled – from around 200 million to 382 million today. That’s a 14.2% CAGR in dilution!
When taking into account this rising share count, per-share revenue and earnings have shown little meaningful growth since listing. In fact, diluted EPS has slid backwards in recent periods, from 2.5 cents in 2H23 to just 1.3 cents in 1H25.
Source: Atturra Financial Statement, author’s own analysis. The company was unlisted in 2021. Share count has been inferred based on reported Diluted EPS and reported NPAT.
Similarly revenue per share growth has been extraordinarily modest compared to the absolute growth.
Source: Atturra Financial Statement, author’s own analysis.
This highlights the risk of headline growth masking the effects of ongoing dilution.
Free cashflow per share has also been weak, again reflecting the ever-expanding share count.
Source: Atturra Financial Statement, author’s own analysis.
Companies producing significant free cash flows generally don’t need to issue new shares to grow the business. There have been significant investing cash flows representing acquisition costs. These definitely need to be included in free cash flow calculations as they are unquestionably ongoing costs, and the business would not have grown without these investments.
If you want to exclude the investing cash outflow from free cashflow analysis, then you also have to exclude almost all the revenue growth from your analysis.
Even if you were to (incorrectly) exclude these from an underlying free cashflow calculation, though, the numbers would not be exciting. Operating cashflow minus lease repayments has averaged just over $3.1 million per year since listing, though encouragingly, over the last two halves, that number has improved to $10.6 million.
While that still puts Atturra on a fairly hefty price-to-free cashflow ratio of 31.5x, at least we can see that the operating businesses it acquired generate cash.
Atturra’s Unusual Capital Management
In December 2024, Atturra raised $70.5 million from institutions via a placement at $1.05 per share, with another $860,000 from retail investors in the subsequent SPP. The SPP was initially flagged as up to $6.1 million, however in the days leading up to the close, the share price traded below the issue price, leading to anaemic demand from retail investors. Transaction costs totalled $1.5 million. Around $14 million of the capital was earmarked for “balance sheet flexibility”, with the rest largely used to fund acquisitions.
Just a few months later (April 2025) the company announced an on-market share buyback. At the time, shares were trading at just 75 cents, though by 29 April when the buyback officially started, it had rebounded to 85 cents. The buyback allows for the repurchase of up to 10% of issued capital, or roughly $30 million in total.
While the buyback itself isn’t necessarily a bad thing, the issuance and repurchase of shares within such a short period creates the impression that the company is trading against its own shareholders.
Investors tipped in tens of millions of dollars at $1.05, only for almost half of that amount to be flagged for a buyback less than six months later, at a far lower price. Buying back shares below the previous issue price creates value per share. So, while this decision benefits existing shareholders, it also enriches the investment bankers and brokers who facilitate the issues and repurchases.
Outlook for Atturra Shares
Management’s guidance for FY25 is revenue of $305-320 million and “uEBITDA” of $31-34 million.
I’m not a fan of using EBITDA generally, but taking EBITDA and adjusting for “capital raising costs, share-based payments, merger and acquisition (M&A) transaction costs, and retention costs” makes the number nearly useless, in my opinion.
In order to get a better feel for earnings if the company were to slow down with acquisitions, we might consider that EBIT margins of around 10% are typical in businesses like Atturra’s. And that is consistent with Atturra’s past history.
Therefore, if we use the mid-point of revenue guidance ($312 million) and apply an assumed 10% EBIT margin, we’d end up with $31.2 million. Given management’s guidance for uEBITDA is around this number, it’s safe to say our “hypothetical EBIT” number is too generous, but for the sake of illustrating my point, I’ll run with it for a moment.
The company had around $80 million in net-cash at 31 December 2024. However, at 30 June 2024 it only had net-cash of $46 million, so let’s assume an average net-cash balance of $60 million over the year. It should be able to get around a 4% yield on its cash, so that gets us a PBT estimate of ~$33 million, and an NPAT estimate of ~$23 million if we assume 30% tax.
In the best case scenario, the buyback will also reach its goals (though in reality that is not certain). Even if the buyback worked out, that would mean EPS of ~6.7c, which would be the best result since listing and putting it on an FY25 pe ratio of just over 13x at the current share price of 88c.
In this very rosy scenario, Atturra looks reasonably priced. However, the truth is that the recent results give me little confidence this best case scenario will be achieved. In fact, I think the company would do well to generate 5.5c per share in FY 2025, which would imply an FY 2025 P/E ratio of 16x.
Meanwhile analysts from both Shaw and Morgans estimate 5 cents earnings per share for FY 2025, implying a P/E ratio of 17.6. For an IT services business with minimal organic growth, that doesn’t seem particularly compelling.
Editor’s Note added 14 May, 2025: The CEO of Atturra, Stephen Kowal, kindly got in touch with us to add a little extra information he thought would be helpful. I agree it is helpful, so I have paraphrased him below with his permission:
“…one nuance you may not be across is that from the time we listed, we were transparent with the market that we wanted to race towards becoming a bigger scale business, initially targeting between $400m and $500m. After focusing on gaining greater scale, we intended to focus more on earnings per share growth. The one slight change to our initial strategy, which we communicated in the last half-year report, is that we now believe we are almost at sufficient scale, despite being below $400m, and we can therefore focus more on earnings per share growth from the second half of FY 2025.”
Should I Buy Atturra Shares?
For me to seriously consider buying shares at current multiples, there would be several things I’d like to see:
- Organic growth, or at least EPS-accretive growth-by acquisition.
- Free cashflow averaging at least 80% of NPAT.
- A stabilisation in share count.
- Abandonment of garbage metrics like “uEBITDA”.
This seems some way off though, so for the moment, I’m happy to wait on the sidelines. While Atturra doesn’t stack up for me at the moment, some companies can successfully grow by acquisition and deliver substantial shareholder value in the process – such as this active Buy Recommendation.
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Disclosure: Neither the author nor editor of this article own ATA shares and neither will trade ATA shares for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 276544).
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