Eleco – yesterday’s Trading Update indicates strength in its ARR, which is not to be ignored, shares now 175p due to exceed broker’s Target

25.07.2025

Ahead of announcing its Interim Results in September, yesterday Eleco (LON:ELCO) advised the market of its progress in the first half-year to end June.

It showed continued advancement in both its business strategy and its business model.

And one important point to be noted is that the £145m-capitalised specialist software group delivered even further growth in its Annualised Recurring Revenues (ARR).

The Business

Eleco is engaged in providing software and related services.

It is focused on building environments through its brands like Elecosoft and Veeuze, from centres in the UK, Ireland, Sweden, Germany, the Netherlands, Romania and the USA.

Its software solutions are used throughout the building lifecycle, from early planning and design stages through construction, interior fit out, asset management, and facilities management, to support project management, estimation, visualisation, building information modelling, and property management.

The Elecosoft brand enables companies supporting the building lifecycle across a range of industries to drive operations through its integrated software, professional support, training, and consultancy.

Its Veeuze brand offers personalised product visualisation across a multitude of marketing channels with the support of its artificial intelligence (AI) tools and others.

The Trading Update

The six months to end-June showed a 19% increase in its ARR to £30.7m (£25.8m), while its Total Recurring Revenues were up 23% at £14.8m (£12.0m).

ARR is defined as normalised annualised recurring revenues and includes revenues from subscription licenses, contract values of annual support and maintenance, and SaaS contracts.

TRR is defined as the recurring revenues from subscription licences, contract values of annual support and maintenance, and SaaS contracts.

Management Comment

CEO Jonathan Hunter stated that:

"The Group has delivered record recurring revenue in H1 2025, strong cash generation and improved operational gearing, despite challenging geopolitical and macroeconomic conditions.

New customer acquisition ("new logos") and expansion within the existing recurring revenue customer base are progressing well and we continue to see positive opportunities following the successful acquisition of PEMAC, which has broadened our CMMS Asset Management and Maintenance customer base.

During the period, construction markets have continued to experience deferred pipelines which in turn have reduced growth in our one-off services and training income. 

We have implemented measures and initiatives to mitigate and address these non-recurring effects as we expand recurring revenues, which now account for 81% of total revenues at the half year.

The Board remains confident in delivering results in line with market expectations for the full year."

The Equity

There are some 83.3m shares in issue.

The larger holders include Herbert Allen (14.24%), Threadneedle Asset Management (6.12%), Investing PROFIT Wisely (5.44%), Jupiter Asset Management (4.83%), Tikvah Management (4.68%), Hargreaves Lansdown Asset Management (4.24%), Janus Henderson Investors (3.78%), Long Path Partners (3.69%), Fiske (3.10%) and The Ezrah Charitable Trust (3.03%).

Analyst Opinion

At Cavendish Capital Markets, analyst Michael Hill has a 200p Target Price on the group’s shares.

His current year estimates, to end-December, are for group revenues to increase to £39.6m (£32.4m), with adjusted pre-tax profits rising to £6.8m (£5.4m), lifting earnings up to 6.5p (5.0p) per share, while also paying out a dividend of 1.1p (1.0p).

For 2026 he goes for £46.7m sales, £8.3m profits, 7.9p earnings and a 1.2p per share dividend.

In My View

Regular readers will know by now just how much I like to see annual recurring revenues – they are the base of any expanding company selling its services.

ARR informs a Finance Director just how much he can budget out future expenditure and investment for a business.

Eleco is only a small enterprise, with its shares now at 175p, it is capitalised at around £150m, and its price-to-earnings ratios may well appear almost stratospheric, however that must not put off potential investors from taking a buying view right now.

I can see the broker’s Target Price being soon left far behind as this little group uses its cash and facilities on further acquired growth.