Why I like Systems Limited?
Generally technology sector is more volatile than the overall market. For my personal preference for a smooth ride, I as an investor would look at the beta of the stocks. Beta is the second letter of the Greek alphabet used in finance to represent the volatility or systematic risk of a stock or portfolio compared to the stock market. The lowest beta (among the following five companies) is of Systems Limited which is slightly above 1. It is as volatile as the market is.
Avenceon Limited – Automation solutions – Beta: 1.41
Netsol Technologies Limited – Software Solutions – Beta: 1.54
Octopus Digital Limited – Digital services – Beta: 1.53
Systems Limited – IT Services – Beta: 1.02
TRG Pakistan Limited – IT Services – Beta: 1.35
The focus of this article is Systems Limited being my preferred business and I will demonstrate the rationale.
Increasing global demand for cloud computing, digital transformation services and Business Process Outsourcing has benefited Pakistan’s technology sector as well. Systems Limited (SYS) has established itself as one of the most successful and rapidly growing companies on the Pakistan Stock Exchange (PSX). Since its listing in December 2014, the company has offered investors strong financial performance and consistent revenue growth.
SYS Growth numbers
Let’s look at growth numbers. The company has demonstrated strong topline growth and profitability in the last 5 years. The Compounded Annual Growth Rate (CAGR) in Consolidated Revenue, Consolidated Net Profit and Consolidated Basic Earnings Per Share of 63% p.a., 53% p.a. and 50% p.a. respectively during this period.
Gross Profit Margin and Net Profit Margin are around 30% and around 20% respectively.
Here is the table in a format you can copy and paste:
| Ratio | 2023 | 2022 | 2021 | 2020 | 2019 | 2018 |
|---|---|---|---|---|---|---|
| Gross Profit Ratio | 26% | 27% | 33% | 33% | 31% | 29% |
| Net Profit Ratio | 16% | 21% | 29% | 22% | 21% | 20% |
| Return on Equity | 27% | 29% | 36% | 27% | 28% | 25% |
| Return on Capital Employed | 29% | 29% | 36% | 26% | 27% | 25% |
The Company generates over 84% of its revenue from the export of Services to various geographies such as North America, Europe, Asia Pacific and the Middle East, and 16% from the domestic market. The Company is well diversified into various business verticals such as Banking and Finance, Telco, Retail & Consumer Packaged Goods, Pharma, and the Public sector. It has strategic partnerships with global giants (Microsoft, SAP, Temenos).
Around 95% of SYS revenues are foreign currency denominated for FY 2023. Why does it matter to an investor? Pak Rupee approximately depreciates by 5-8% per annum based upon the last 10- or 20-year data. Foreign currency-denominated revenues work as a hedge against Pak Rupee depreciation and the Investors are protected against capital erosion in terms of US dollars.
The Company has made significant investments during 2023 in new markets such as Saudi Arabia, APAC and Africa to stimulate the growth momentum for the next few years. It will now be working to mature these markets to get robust and sustainable growth. Let me fascinate you with an illustration.
How much would 1 million invested in SYS be worth now?
If someone invested Rs 1 million on 5 February 2015 in SYS stocks, he would have stocks worth Rs 22.6 million on 05 February 2024, assuming cash dividends are not reinvested, without doing any trades or timing the market. The value of these stocks as of 05 February 2025 would have reached Rs 32.1 million. Share prices of SYS Stock on 05-Feb-2015 and 05-Feb-2025 were Rs 46.28 and Rs 559.34 respectively.
From 27-Feb-2015 to 31-Dec-2024, the KSE 100 Index has an annualized return of 17.27% per annum while SYS stock is 44.00% per annum over the same period. (Source: Bloomberg)
From year 2015 to 2024, the Company has demonstrated positive growth in share price in seven out of nine years, in the range of 24.45%-237.27%. In the years 2017 and 2023, there has been a decline in share prices in the range of 12.47%-12.62%. (Source: Bloomberg)
Given its high-profit margins, strong earnings growth, high return on equity (ROE), consistently exceeding 25% per annum, and solid market positioning, SYS undoubtedly presents a compelling investment opportunity.
The Company has proven itself to be a resilient, high-growth organization with a strong track record of performance. Its ability to consistently grow revenues, expand globally, and adapt to the evolving digital landscape makes it an ideal candidate for long-term investment. With the increasing global demand for IT services and digital solutions, SYS is poised to maintain its growth trajectory, offering investors significant potential for capital appreciation and sustained returns in the coming years.
Comments (2)
Insightful indeed !
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