Aspen Well Positioned for Oil and Gas Rebound
We
see wide-moat Aspen Technology as an interesting niche software company selling
into the industrial process automation vertical market. Aspen’s software
optimizes asset design, operations, and maintenance in complex industrial
environments. The AspenOne software platform helps improve process-oriented
plant efficiency, and thereby lowers capital intensity, increases working
capital efficiency, and improves margins. This is high-end software that
competes against offerings from industrial automation companies like Siemens,
Emerson, and Schneider Electric.
Shares
have gapped up in the months since our mid-December launch. Most of that has
occurred since tensions increased with Iran. Given that Aspen software is used
predominantly for the oil, gas, chemical, and energy industries, at times
shares become decoupled from the underlying business fundamentals and trade based
on the volatility of oil. We now see shares as overvalued.
Outside
of valuation, we see Aspen as a well-positioned company. Oil and gas capex has
been restrained for more than a year and is set for at least a modest rebound
in 2020, which we think will benefit Aspen. We also like the diversification
effort in recent years away from core industries. Today we see 7% of revenue
coming from pharmaceuticals, consumer packaged goods, mining, paper and pulp,
and so forth. We think this continues to pick up gradually over time.
Given the mature industries Aspen serves, we view growth as being less robust than many of the software companies within our coverage, which we think it makes up for by generating among the highest non-GAAP operating margins in the market. Aspen already serves virtually all the largest oil refineries, chemical companies, and engineering and construction companies. We see a $5 billion TAM for the company, and see opportunity to add smaller clients as it continues to further penetrate its existing base of large customers.