HCA SaaS INDEX – August 2022

Software-as-a-Service (SaaS) update – August update 2022:
New low following market uncertainties and increasing interest rates

The SaaS HCA Index, measured on a simple ARR multiple (median) across the Danish SaaS sector, declined to a new low of 5.3x ARR (LTM) end of August. For comparison, the larger and more liquid US-listed SaaS companies also declined to a new low level seen over the past years, down to 6.8x ARR (7.5 ARR end of July) according to The SaaS Capital Index.

As highlighted several times before, interest rates have a large effect on the valuation of growth stocks, including SaaS stocks. Measured by the US 10Y bond yield, the interest rate declined to approx. 2.60% on 1 August 2022. However, the interest rate turned around and surpassed 3.10% by the end of August 2022, which has led to large declines across stock markets, including SaaS stocks.

Looking more into the fundamentals of the SaaS companies, we have also seen mixed H1 2022 results from both the smaller Danish SaaS companies as well as the larger US SaaS companies.

Focusing on the Danish SaaS sector (19 Danish listed companies), however, the median ARR growth rate (LTM) increased from 33% to 38% with the newly announced year-on-year ARR growth rates from H1 2022. Using an LTM ARR multiple, the multiple has primarily declined as a consequence of higher reported ARR numbers from H1 and not declines in market values (overall perspective).

In H1 2022, there have been both upgrades and downgrades across the Danish sector, yet most companies kept their ARR guidance for the end of 2022. However, looking at the current full-year guidance intervals for a large part of the SaaS companies, most of the companies have to deliver very strong second-half results to reach their guidance end of the year. Since we are in a challenging macro environment with longer sales cycles, this may be hard and result in downgrades for some of the SaaS companies. We are looking forward to continuing our focus on the sector and updating our sector report this autumn.

Earlier index graphs


Software-as-a-Service report – May 2022
In our Software-as-a-Service (SaaS) report for May 2022, we provide insights into the SaaS business model, market trends, valuation perspectives as well as deep dives into the Danish SaaS sector, which has been built up during a hot IPO market in the second half of 2020 and 2021. We have outlined several key SaaS metrics and parameters that investors should follow and benchmarked the companies across the Danish SaaS sector. Finally, we are presenting the investment cases of 8 Danish-listed SaaS companies (financials, key SaaS metrics, valuation perspectives, investment reasons, and risks), which are paying clients from a Digital IR/Corporate Visibility agreement. 

Key takeaways – down but not out
Following record-high valuations in 2021, we have observed a sharp decline in valuation multiples to levels below pre-COVID, which has been dragged down by increasing interest rates and fear of slower growth rates. However, long-term double-digit growth rates are expected to continue supported by secular growth trends such as the ongoing digital transformation, automation, and optimization of resources. Thus, current entry levels look interesting for investors with a well-diversified portfolio tripping to get exposure to the software sector and scalable SaaS business models.


Kasper Lihn
E-mail: kasper@hcandersencapital.dk
Mobile: +45 28739322

Disclaimer: HC Andersen Capital receives payment for a Corporate Visibility/Digital IR subscription agreement from several of the companies that are included in the report.