Why this under-the-radar tech stock could light up in the market in FY19 

The share price of Citadel Group Ltd (ASX:CGL) has surged 12% higher since the company released its impressive FY18 financial results two weeks ago. Could Citadel be the next tech stock to light up the ASX?  

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Tech and software solutions provider Citadel Group Ltd (ASX: CGL) has had a fantastic year. The company, which specialises in IT security and data management, generated record revenues for FY18 of $108.5 million. And net profit for the year was up 26% versus FY17 to $19.4 million. 

The growth was driven by a record number of new and extended contracts in FY18 that together brought in $74 million.

Most contract wins were for its flagship Citadel-IX cloud-based enterprise information management platform. The platform allows clients to securely access or transfer proprietary and sensitive information remotely.  

Citadel has over 24,000 clients for its Citadel-IX software, and key amongst them are several branches of Australian local, state and federal government, including the Department of Treasury and Finance, Department of Premier and Cabinet, and the Victorian Public Sector Commission.

It also services private sector companies in highly regulated industries where data security is of primary concern, such as health, transport, and finance.  

The strong results surprised the market. In the two weeks since releasing its results, Citadel's shares have surged over 12% higher to $7.65.  

Citadel currently trades at a multiple of a little under 24x earnings. This makes it quite cheap relative to other high performing tech stocks on the ASX. Current darling of the IT sector Altium Limited (ASX: ALU), which develops software used in the design and production of printed circuit boards, trades at about 98x earnings.

Logistics software company WiseTech Global Ltd (ASX: WTC), which has seen its share price jump 40% in the last two weeks, trades a multiple of a little under 160x earnings. And based on its first half FY18 results, data warehouse provider Nextdc Ltd (ASX: NXT) trades at a multiple of close to 200x earnings – though this could change significantly once its full year FY18 results are released to the market on Friday.  

So far, Citadel hasn't caught the attention of the market in the same way these other tech stocks have. However, the company is confident it can build on its success to deliver even more growth to shareholders in FY19.

It has a strong pipeline of opportunities, including collaborative projects with RAAF in New South Wales as well as several major universities, hospitals and healthcare centres. 

Citadel is also pursuing strategic acquisitions as a way to augment its organic growth. In 2016 it acquired Kapish, a developer of record-keeping software, and late last year it snapped up Charm Health, which specialises in oncology information management.

Then in April of this year Citadel announced another e-health acquisition, purchasing Queensland-based billing and practice management software developer Anaesthetic Private Practice.   

Foolish takeaway

Citadel isn't quite as developed as some of the other tech companies mentioned – Altium's net profit was almost double Citadel's for FY18. So that added financial uncertainty carries some extra risk, and makes it a slightly more speculative bet than some of its more established IT sector peers. 

But that being said, Citadel has proven itself to be a profitable company and it has grown its revenues and net profit consistently over the last two years. It has also managed to fly under the radar and could offer good value for long term growth investors who aren't afraid to take on a little extra risk.  

Should you invest $1,000 in Altium right now?

Before you buy Altium shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Altium wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Rhys Brock owns shares of WiseTech Global & Altium Ltd. The Motley Fool Australia owns shares of Altium, Citadel Group Ltd, and WiseTech Global. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Person pretends to types on laptop drawn in sand.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a happy finish to the week for ASX shares this Friday.

Read more »

Three people in a corporate office pour over a tablet, ready to invest.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.
Share Market News

ASX shares in April: 8 key takeaways according to Macquarie

Here are eight key takeaways from April, according to a new note from the broker.

Read more »

Woman looking at a phone with stock market bars in the background.
Share Market News

Market outlook: Should I 'sell in May and go away'?

May is the time to sell... If you believe in fairytales.

Read more »

Five young people sit in a row having fun and interacting with their mobile phones.
Share Gainers

5 ASX All Ords stocks rocketing higher this week

Investors sent these five ASX All Ords stocks soaring this week. But why?

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why Block, Corporate Travel Management, Judo, and Zip shares are sinking today

These shares are missing out on the good times on Friday. But why?

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Share Gainers

Why Boss Energy, Capstone, Dimerix, and Platinum shares are storming higher today

These shares are having a good finish to the week. Let's find out why.

Read more »

A shocked man holding some documents in the living room.
Broker Notes

Macquarie's take on Judo Capital shares after suddenly falling 19% yesterday?

Judo Bank was the ASX's top-performing banking stock in 2024.

Read more »