On Thursday, enterprise and government workflow platform software provider Objective Corporation (ASX: OCL) reported its results for FY 2025. Disappointingly, revenue was up just 5.1% to $123.5 million. Pleasingly, however, profit performance was significantly strong with net profit after tax up a far superior 13.1% to $35.4 million.
Earnings per share were not much disturbed by dilution and were up 13% to a record result of 37.2 cents (basic) and 36.6 cents (diluted). The second half was the driver of the improved result, coming in notably stronger than the analyst consensus estimates I outlined in my H1 FY 2025 results coverage (dotted line in the chart below).
Another positive was that the company achieved much better annualised recurring revenue (ARR) than statutory revenue growth, as a result of deals signed towards the end of the second half. To wit, ARR was up 15% to $120.2 million, compared to 5.1% growth in revenue. This bodes very well for stronger revenue growth in FY 2026. You can see below how the stronger H2 ARR growth compensates for the weaker H1 ARR growth.
I have repeatedly mentioned that, I do not think that the 15% ARR growth rate is a good guide for the organic growth of the company. Instead, I view it as an aspirational target, with a growth rate of around 10% – 12% being a more likely result.
Therefore, I am certainly pleasantly surprised that the full year ARR growth has come in at the target. All the more so since of the weaker H1 ARR growth of 10% left a lot of heavy lifting to the second half.
For me, the unexpectedly strong ARR growth was the biggest positive for two reasons. First of all, because it is stronger than I expected, and second of all, because it vindicates the CEO who – despite market skepticism – had claimed “The CEO said on the earnings conference call that “we’re already some sort of additional $4.5 million into the number that we need to retire to get to that 15%. So we remain relatively confident of achieving this growth rate.”
Of course, I also think it is positive that earnings per share exceeded consensus estimates. Combined, I suspect these two factors largely explain the almost immediate 20% gain in the Objective share price, with the stock closing at an all-time high of $22.90 yesterday after the results, though I note the share price has fallen back to $21.67 at the time of writing.
Operating cashflow was $46.26 million, investing cash outflow was $16.35 million and repayment of leases was $2.85 million, leaving us with free cash flow of about $27 million. This was slightly weaker than last year ($38m) but fairly strong cash conversion, with free cash flow at about 76% of profit. As a result, Objective boasted $99.2m cash and no debt at the end of the period.
The company also declared an unfranked dividend of 13c to bring the full-year dividend to 22c. I am ambivalent about unfranked dividends and would be happy for them to keep the cash if they thought it would be useful in the future. In any event, the trailing dividend yield of 1% is not material to the investment thesis.
Objective Corporation Segments
Turning to the segments, the graphic below from page 5 of the annual report shows the segment performance.
The fact that ARR growth exceeded revenue growth in every segment reflects how much stronger was the second half than the first. It is also notable that the content solutions business continues to account for 69% of the company’s annualised recurring revenue. Based on the relative growth rates, you’d expect that to decline going forward.
That said, I think the content solutions business might be the most valuable part of the business long term, because of the sensitive and important role it plays for government clients.
We can’t be sure what kind of returns Objective Corporation will get from its R&D spend, but the content solutions business is somewhat of a platform so it probably provides many opportunities for expansion.
The company emphasised this when it mentioned:
“During FY2025, the Scottish Government (SG) committed to transition to our Objective Nexus cloud platform. SG delivers services to more than 5 million people and is our second largest customer with 18,000 users. The trust shown in Objective by this high-profile, long-term customer complements and extends on the go-to-market activity we’ve undertaken to build a strong position in the UK market for Objective RegWorks.”
Another positive was that Objective “launched the Keystone Mastery program to build and demonstrate proficiency in the use [of Objective Keystone]”. As Objective trains more financial product disclosure specialists on its software, it makes the Keystone software more attractive to potential clients. During FY 2025 it added “Hostplus, Macquarie Investments and Mercer Investments to its portfolio of Australian Superannuation funds.”
As a reminder, the Objective Build segment is mostly usage based revenue, so it can naturally be influenced by economic conditions beyond Objective’s control. I hope to see the company report strong progress with selling this product into Australia in the second half.
The company said it “evolved the Accelerator delivery model” in the regulatory segment, aimed at improving implementation times. On the conference call CEO Tony Walls said, “our investments in innovation and go-to-market capacity create more customer opportunities, we are getting our customers to go-live status sooner, with a fixed level of implementation resources.”
Shorter implementation times can be a competitive advantage in enterprise software, so this is good to hear. Overall, H2 FY 2025 was a strong half and the company continues to make progress.
The CEO emphasised on the call that he still ultimately prioritises profit growth over “revenue growth”, and also mentioned that asking prices for potential acquisitions have come down a lot, but vendors still have high expectations. Nonetheless, the company did manage to make one small acquisition on July 1 2026, Isovist. This will add around $2m revenue in FY 2026.
Given the company is free cash flow positive and has almost $100m in cash, I could definitely see the potential for more acquisitions. However, the CEO noted that the multiple they are willing to pay increases with the size of the business. Therefore, it is possible that smaller transactions will offer the best risk vs reward for Objectve shareholders.
Objective Corporation Valuation
At the current share price of $21.60, Objective Corp trades on about 59x trailing earnings. The company is targeting 15% revenue growth with profit growth higher than that. However, to be a little more conservative, I could assume 13% profit growth on average over the next 5 years.
All else being equal, that would put earnings at about 67 cents per share at the end of 5 years. At the current share price, that would imply a price of 32 times earnings, after 5 years of growth. That’s not absurdly expensive, but it is not obviously cheap either.
In practice, I definitely think it is likely Objective would trade at a higher multiple than that in 5 years. However, I can’t be sure of that. What I can be fairly sure of is that Objective definitely looks more expensive now than it did in the past. The results have come in, perhaps, 10% to 20% better than I expected. But the share price is up even more.
Therefore, I gave significant consideration to downgrading Objective Corp to Hold based on the more optimistic share price.
However, I have decided to leave it as a Buy, for now, in large part because the sociological set-up makes the stock look attractice, in my view.
To be specific, I think (eventually) there is a good chance Objectice Corporation will make it into the ASX 200, forcing passive index funds to buy the stock. On top of that, I think Objective is very well placed to start securely introducing Artificial Intelligence driven innovation to its customers, potentially extending its competitive advantage and deepening its customer value proposition.
On the conference call, the CEO said they would delve more into the artificial intelligence opportunity at the upcoming AGM, so we should know more about that opportunity before the year is out. On top of that, Objective Corporation actually trades at a lower P/E multiple compared to other similar enterprise software companies on the ASX. This could partly be justified by lower growth, but it also has to do with lower liquidity and the fact Objective is not in the ASX 200… yet.
The bottom line is that I am more cautious about Objective Corporation share price now, than I was when I first recommended the stock. Given it is one of my largest positions, I don’t currently plan to buy more shares myself at $21.60.
That said, I would still buy a small initial holding if I did not have any Objective shares. However, readers should keep in mind the possibility that, since the stock is quite illiquid and can be quite volatile, there may well be more opportune moments to buy in the future.
Nonetheless, due to its attractive long-term potential, Objective Corporation remains a Buy.
Disclosure: The author owns shares in OCL and will not trade OCL shares for 2 days following this article. This article is not intended to form the sole basis of an investment decision. 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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