Eleco: Orchestrating growth through SaaS

Momentum investing thrives when the mood music in the market aligns with opportunity…

Global business model

Eleco’s strategic focus is on digital transformation, providing software solutions to support various stages of the building lifecycle. Eleco has evolved into a high recurring revenue, Software as a Service (SaaS) driven business, leveraging technology to meet the evolving demands of the construction sector.

Key products and brands:

Eleco’s key product portfolio caters to specific aspects of the building lifecycle:

Elecosoft: Eleco’s a primary brand, provides integrated software solutions featuring products like Bidcon for project management and estimation, IconSystem for project visualisation and management, Asta Powerproject for project planning and control.

Veeuze: Specialises in personalised product visualisation for marketing purposes. Solutions include ConfiMerce for enhanced customer experiences, InteriorStudio for interior design visualisation, and MarketingManager for marketing visual management.

Staircon: Focuses on stair design and production.

BestOutcome: A recent acquisition which enhances Eleco’s capabilities in Project Portfolio Management (PPM) software.

Revenue generation:

Eleco generates revenue through a combination of software sales, subscription licenses, contract values of annual support and maintenance, and SaaS contracts. The transition to a SaaS model has contributed to the company’s record growth in recurring revenue. Key revenue streams include:

• Software sales: Revenue generated from the sale of software licenses to clients in the construction and built environment sector.
• Subscription licenses: Recurring revenue from ongoing subscriptions for the use of Eleco’s software products.
• Support and maintenance contracts: Revenue derived from contracts providing ongoing support and maintenance services for the software.
• SaaS contracts: Revenue from SaaS contracts, where clients pay a recurring fee for accessing and using Eleco’s software solutions over the cloud.

Growth strategy

Eleco are taking a three-pronged approach to growth under their new SaaS model:

Higher margin products: Eleco are focussing on higher-margin core products, streamlining its portfolio to include essential solutions for the building lifecycle. This targeted approach maximizes profitability and underscores Eleco’s commitment to delivering high-value offerings to its clients.

US expansion: International expansion is a key component of Eleco’s growth strategy, with a specific focus on the United States. The company has introduced a direct sales approach and invested in sales and marketing – successfully acquiring over 40 new direct customers in the US already.

Product innovation: Yes, product innovation is one of those bland terms which are banded around by every tech company, but Eleco’s commitment to innovation is evident through its numerous awards. For example, the consistent recognition of Asta Powerproject as ‘Project Management Software of the Year’ at the UK Construction Computing Awards for ten consecutive years underlines Eleco’s dedication to delivering cutting-edge and award-winning solutions.

Bull flag follows ‘gap and go’ Trading Update

In Eleco’s recent Trading Update for the year ending December 2023, the company reported record growth in Annualised Recurring Revenue (ARR) and Total Recurring Revenue (TRR), reflecting progress on its growth strategy.

In terms of long-term valuation, the shares score higher for quality than they do for value and this reflects out approach to small cap investing.

We believe that quality, as defined by a strong balance sheet, stable revenue streams and consistent profitability will allow small-cap investors to reap the highest rewards without fear of dilution.

Eleco, fall into this category and we’re excited to add this stock to our list of AIM Investor open positions.