Enghouse Systems gets Top Pick status from this portfolio manager

Searching for a tech stock that hasn’t shot to the moon over the past couple of months? Take a look at Enghouse Systems (Enghouse Systems Stock Quote, Chart TSX:ENGH), which has just been batted around by an underwhelming quarter but gets a Top Pick vote from Liberty International portfolio manager David Driscoll.

“They’re kind of like Constellation Software but trading at a much lower multiple. Think of the banks and the telecoms needing call centres but also they do facilities management for utilities,” says Driscoll, president and CEO at Liberty International, in conversation with BNN Bloomberg on Thursday. “It’s a very quiet little company.”

Markham-based software company Enghouse had its ups and downs over 2018, rising from $30.75 to $43.49 by early July, only to tumble over the second half of the year. Still, the stock finished 2018 up eight per cent, an achievement in a year that saw few tech names finish in the black.

2019 started fine for ENGH but then the company released its first quarter 2019 earnings on March 7, which featured revenue of $86.04 million, a slight one per cent growth rate year-over-year and below the expected $91.0 million, and EPS of $0.27 share, also below the consensus estimate of $0.30 per share.

The slowdown caused a big drop in share price, going from $39.00 to where it now trades at $32.00. But Driscoll says there’s a lot to like about Enghouse, including the dividend, a bit of a rarity in the tech sector, which currently yields 1.36 per cent.

“It’s been growing its dividends by roughly ten to 15 per cent a year,” Driscoll says. “The stock came down because they only grew their revenues by one per cent in the last quarter and that’s because they didn’t do any acquisitions. The payout ratio and the dividend is only eight per cent so there’s lots of room to grow with this company. We’ve owned it for about ten years.”