Trimble Stock: A Real Asset Software And Data Analytics Powerhouse On Sale

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Trimble (NASDAQ: TRMB) is a hardware, software, and technology services company that serves the entire gamut of real assets with its innovative solutions, whether they are farmland, buildings, infrastructure and utilities assets, or even natural resources.

Unlike many other PropTech companies, TRMB is a mature business that brings over four decades of experience to the table and is also extremely profitable business with a relatively mild Price to multiple Earnings (24.86x). That said, the company is still hugely innovative and invests whopping 15% of revenue into research and development while claiming clients with 25-50% efficiency gains and 30% cost savings over traditional real asset solutions.

Its technologies enable real asset focused business to optimize the productivity of their assets. These solutions include:

  • software and hardware packages to optimize the full cycle for farmers, enabling them to maximize yields.
  • buildings solutions that lead to safer, faster, and greener construction, as well as better architectural and engineering design solutions.
  • high tech geospatial solutions that improve the function of railways, tunnels, mining operations, fuel storage assets, dams, roads, and land mapping operations.
  • software and hardware solutions ranging from water and wastewater plants to internet assets, energy assets, electric and gas utilities, airports, shipping ports, roads and bridges (including lane-changing autonomous vehicle technology), and railroads.
  • Forestry and mining technology solutions.

In the rest of this article, we will detail three reasons why TRMB could be a great long-term investment.

# 1. Poised To Profit From The Rush To Real Assets

TRMB is poised to profit immensely from the rush to real assets that are currently developed and which we expect to accelerate in the coming years.

Given that inflation has been so high in four decades and that it has always been. This bodes extremely well for cash flushing assets as it means that the replacement cost of these assets is soaring while also making their income generating ability extremely attractive.

In addition, it is difficult to provide economies of age and developed economies.

From the top of that, heavily leveraged government balance sheets are – but last – but not least – the 4th industrial revolution is driving the modernization of infrastructure and creating the new technology-focused business opportunities along with.

TRMB’s solutions in the years to come, in particular from the recent infrastructure bill in the United States. It is a unique position to profit from servicing the real asset businesses today.

# 2. Strong Competitive Advantages

TRMB has spent a lot of research and development, giving it an impressive intellectual property library of over 1,000 patents.

One of TRMB’s key differentiators is its capability and emphasis on leveraging and combining geospatial / positioning technology with productivity technologies to maximize synergies and efficiencies for customers. By using GPS and sensor technologies in the field with its proprietary software solutions, it can connect the physical and digital world at a level that few other companies can match.

Another three big competitive advantages for the company are its:

  • Network effects
  • Cross-selling capability
  • Cash flow strength

Thanks to its four decades of doing business, TRMB has built a large client network and a strong reputation in its industry. As a result, it enjoys significant network and economies of scale advantages over younger and smaller competitors.

In fact, over 70% of the top 100 geospatial companies use TRMB, over 10,000 surveyors and mapping firms in North America are TRMB customers, there are over 10 million users of TRMB’s construction Connect system, Nikon (OTCPK: NINOF), Caterpillar (CAT), and Hilti, over 155 million acres of farmland use TRMB’s technology solutions, 115,000 farmers subscribe to its services, 99% of the top 200 trucking fleets in the US use TRMB technology, and over 2 million transportation infrastructure assets are managed with TRMB technology.

In addition, with its presence in a wide array of industries, TRMB is capable of cross-selling its products and services, making it a stickier and more convenient one-stop-shop for many of its clients.

It is also capable of leveraging this breadth to attract advanced cloud-based companies like Microsoft (MSFT), which has recently been partnered with advanced cloud solutions for real assets.

Finally, the fact is that it generates strong profits and free cash flow – that it can (and does) regenerate itself without having to rely on the support of capital markets to fuel growth. Many younger, unprofitable PropTech competitors do not benefit from this.

As a result, it is dominated by automotive and data analytics driving performance management in these industries.

# 3. Wonderful Company Trading At A Fair Price

While this sounds great, what is the value proposition like?

TRMB looks pretty attractive based on historical valuation multiples

Metric Valuation Current 5-The Average
EV / EBITDA 16.45x 22.75x
P / E 21.65x 29.09x
P / FCF 19.21x 28.57x

Based on these numbers, the stock looks quite cheap. Also, as we have already stated, we expect its growth rate to accelerate over the next 5-10 years as the economic asset, geopolitical, and technological factors. On top of that, TRMB is also positioned to benefit from this trend more than its technological breadth and depth. 2021 already demonstrated a strong uptick in growth as businesses consider adopting advanced technologies.

In 2019, TRMB only grew revenue by 5.2% and then in 2020 it declined by 3.6%. In 2021, it grew by 16.1%. EBITDA growth jumped to 17.3% in 2021 compared to 7.5% growth in 2020 and 9.3% growth in 2019. Normalized earnings per share grew by 19.3% in 2021, up from 12.1% in 2020 and 2.6% growth in 2019. So, if anything , we think shares should trade at a premium to their recent history.

While rising interest rates are clearly a concern, the TRMB is already generating a lot of free cash flow today instead of pointing to profits in the distant future. Even better, it is generating more cash flow than a year, reflecting the cash efficient nature of the business and its ability to push working capital into negative territory. Furthermore, the TRMB should be tailor-made, as its main pitch to customers is its ability to improve efficiencies, solve supply chain problems, reduce raw material and labor costs, and effectively battle inflationary forces.

Another symptom that suggests TRMB is undervalued is management’s accelerated allocation of cash flow towards buybacks even as it maintains a hefty R&D budget. Share repurchases in Q4 2021 were $ 40 million, representing $ 3.6 million in Q4 2020. This is particularly prudent given that mid-2021.

Risks To Keep In Mind

While TRMB is much lower risk than the two previous opportunities we mentioned (Matterport (MTTR) and Opendoor Technologies (OPEN)), it still faces some risk. TRMB generates roughly half of its revenue from outside North America, with a sizable percentage coming from Europe and Asia.

In addition, it is likely that the company will be able to invest in a large number of other assets, specific niches. While TRMB has the cash flow capability to handle this, it can mean that its profits can be curtailed in the future and it can be curtailing its share repurchases and even issue equity, thus diluting shareholders.

Another risk is one that companies can easily invest in technologies that do not translate into successful innovations either. While TRMB certainly does not look overpriced here, it is not extremely cheap either. The extent to which it is uncertain, meaning that it does not come with a wide margin of safety.

Investor Takeaway

TRMB is more than simply a PropTech company: with four decades of experience and a very strong position across a wide swath of real asset classes.

From the top of that, the company continues to invest in growing the company through acquisitions, partnerships, and research and development.

Last, but not least, is a growing Growth-At-A-Reasonable-Price investment. To quote the Oracle of Omaha, we believe this is a great price trading company rather than a fair company trading at a wonderful price.

We have recently covered many opportunities in the Property Technology sector for our members at High Yield Investor and found this to be one of the most attractive on a risk-adjusted basis.

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