A Member of Pat McKeough’s Inner Circle recently asked for his advice on Enghouse Systems, a software company that develops customer interaction management and asset management solutions for contact centers, telecommunications providers, and utilities.
Pat likes the high 5.7% payout supported by fortress-like balance sheet with no debt. However, Pat notes the stock has declined due to weak revenue and income trends.
Enghouse Systems Ltd. (Symbol ENGH on Toronto; www.enghouse.com) is a software and services provider.
The company operates through two business groups: Interactive Management (59% of total revenue) sells software for managing customer interactions; and Asset Management (41% of revenue) offers technological solutions for network operators as well as software solutions for transit and transportation operators.
Enghouse’s revenue fell 7.3%, from $503.8 million in 2020 (fiscal years ended October 31) to $467.2 million in 2021. That’s mainly because customers cut their spending on its services due to the COVID-19 shutdowns. Revenue fell another 8.5% to $427.6 million in 2022. However, revenue rebounded 6.2% to $454.0 million in 2023, and improved a further 10.7% to $502.5 million in 2024.
[ofie_ad]
The lower revenue also cut the company’s earnings by 6.2%, from $1.77 a share (or a total of $98.6 million) in 2020 to $1.66 a share (or $92.8 million) in 2021. Cost cuts and a tax recovery lifted earnings by 2.4% to $1.70 a share (or $94.5 million) in 2022. Earnings then dropped 22.9% to $1.31 a share (or $72.2 million) in 2023, partly due to the costs of integrating an acquisition. However, 2024 marked an earnings rebound, with a 12.2% rise to $1.47 a share (or $81.3 million).
Acquisitions have fuelled much of the company’s growth and helped to diversify its operations.
On December 16, 2024, the company announced that its U.K. business acquired Acculab PLC for an undisclosed amount. That firm’s main product is Acculab Cloud, a CPaaS (communications as a service) product to integrate voice and video calls, messaging, and fax management.
Acculab will operate under Enghouse’s Interactive Management group. Estimates suggest that 90% of businesses will adopt CPaaS by the end of 2026, up from just 30% in 2022.
Enghouse’s solid balance sheet supports its acquisition plans
In its three months ended July 31, 2025, Enghouse’s revenue fell 3.8%, to $125.6 million from $130.5 million a year earlier. The decline was primarily due to ongoing macroeconomic uncertainty and a difficult market environment.
Earnings in the quarter fell 16.6%, to $17.2 million, or $0.31 a share, from $20.6 million, or $0.37, on extra costs including related to acquisitions.
Enghouse holds cash of $271.6 million, and it has no long-term debt; That strong balance sheet helps support its acquisition plans.
The stock now trades at 14.5 times the forecast 2025 earnings of $1.43 a share. The dividend yields 5.7%.
Recommendation in Pat’s Inner Circle: Enghouse Systems Ltd. is okay to hold but only for aggressive investors.
