Summary
- Duck Creek Technologies has gone public in an offering which has been a big success.
- Shares rose 50% on their opening day to $40 per share, double the preliminary offering range earlier this month.
- The risk-reward, looking at sales growth, margin profile and valuation multiples, does not look very convincing to me, in fact the opposite.
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Duck Creek Technologies (DCT) has seen a very successful public offering, no wonder, as this company is a SaaS play which these days seems enough of a reason to guarantee a successful offering. I am not that impressed with the performance of the company, as even if sales growth has seen a meaningful acceleration as of recent. The growth numbers, in combination with margin profile, as well as current 23 times sales multiple makes this a very easy avoid for me.
SaaS For P&C Insurance
Duck Creek is a SaaS provider of core systems for the property and casualty insurance industry. Over the past two decades, the company has developed great expertise in this market and has developed a low-code SaaS configurability technology platform. This works together with core processes of its clients for policy administration, management of claims and billings, working in conjunction with the core operating systems of its customers.
Greater user expectations, stiff competition and new risks create the need for agile and innovative software, as many P&C customer rely heavily on legacy systems which not only are inefficient, they are further costly to maintain and upgrade, while they lack flexibility.
Clients of the company include blue chip names such as Progressive, AIG, Berkshire Hathaway, Geico, Munich Re, and many others. This is a bit of a concern as these clients are typically quite large, resulting in some dependency risks. Furthermore, many incumbents such as Lemonade (LMND) aim to disrupt the market, and given their innovative practices, they perhaps circumvent the services of Duck Creek altogether.
