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.  

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

young woman reviewing financial reports at desk with multiple computer screens
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these stocks.

Read more »

A businesswoman exhales a deep sigh after receiving bad news, and gets on with it.
Share Fallers

Why Bell Financial, IPD, Megaport, and Resolute Mining shares are falling today

These shares are starting the week in the red. But why?

Read more »

Person pointing at an increasing blue graph which represents a rising share price.
Share Gainers

Why Liberty, Lovisa, Novonix, and SG Fleet shares are storming higher today

These shares are starting the week strongly. But why? Let's find out.

Read more »

Shot of a young businesswoman looking stressed out while working in an office.
Industrials Shares

This ASX share is tumbling 13% on reduced earnings forecast

Earnings are expected to fall in the first half, much to the dismay of the market.

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Mergers & Acquisitions

Guess which ASX All Ords stock just rocketed 23% on a $1.2 billion offer

Investors are piling into the ASX All Ords stock amid a $1.2 billion takeover bid.

Read more »

Excited group of friends sitting on sofa watching sports on TV and celebrating.
Technology Shares

Why today is a big day for Pro Medicus shares

Records are being broken by this share on Monday. What's going on?

Read more »

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Opinions

3 reasons the GQG share price looks like a buy to me

Here’s why the fund manager could be good value.

Read more »

Young man looking afraid representing ASX shares investor scared of market crash
Share Market News

These are the 10 most shorted ASX shares

Let's see which shares short sellers are targeting this week.

Read more »