A software bargain

The Market Opportunity

“We’ve seen two years’ worth of digital transformation in two months” 29th of April 2020, S. Nadella, CEO of Microsoft.

COVID-19 has initiated – or rather accelerated - digitalization efforts across the globe and across all industries. Ensuring business continuity and safeguarding productivity levels has been the highest priorities for most companies. To put in context, Sesa - the largest IT vendor in Italy - had a +60% increase of consultancy requests from essential sectors (food, banking, utilities, pharma, healthcare, etc) when lock down was initiated. Other sectors (fashion, manufacturing, retail, automotive, etc) recognized their weaknesses and structural need for digital transformation and has reached out to Sesa post-lock down. Sesa had a 15.2% net profit 10-year CAGR in a country unable to even once reach 2% annual GDP growth, for 20 years.

Enterprise software is in a secular tailwind and I would argue we still have years and years of growth ahead of us, especially in emerging markets. Looking to complement my (mainly US) portfolio of tech companies I’ve initiated a new position in a local champion: Logo

The Company

Deloitte gave Logo the Technology Big Star Award in their most recent publication Technology Fast 50 Turkey 2019. Brand Finance® (rating brands since 1996) named Logo Most Valuable Information Technology Brand in their recent yearly report.

Logo offers proprietary software to more than +90 000 enterprises ranging in size from micro companies to large scale corporations. With +60 applications Logo is a one-stop-shop for digital transformation in Turkey.

Logo is the fastest-growing Enterprise Application Software (EAS) company in Turkey. The EAS market comprises five key product lines of which Enterprise Resource Management (ERP) is the largest and constitutes 55% av corporate software spending in Turkey. Logo is the undisputed leader in number of users and a close 2nd in terms of revenue (Annual report, IDC, Citigroup).

In Supply Chain Management (SCM) and Operation Management Applications (OMA) Logo controls half the market in terms of revenue and users. SCM provides functionalities aimed at logistics and inventory management while OMA is mainly manufacturing and service management applications. CRM and Business Analytics are lagging (Top 5) but several acquisitions are being made within CRM.

Being the market leader in one or more verticals create a huge opportunity for cross-selling and establish your products as a platform. In-house research provided to me by Logo showed that client spent went up 10x the following 13 years from the first license purchase. While this is data cherry picking (not representative for alla clients) it does illustrate the scalability and stickyness of software if executed well.

The Company: Innovation

Logo is one of the most Research and Development intensive corporations in Turkey with a five year average of 30% R&D spend to sales. R&D is divided in Horizon 1 to 3.
- Horizon 1 (60%): Current Products; client requests and new modules/updates.
- Horizon 2 (25%): New Product Launch 18-36 months away
- Horizon 3 (15%): New Product Launch +5 years away

  • 4000 new features added in 2019

  • 7 new full versions in 2019

  • Transforming existing on-premise product suites into SaaS

  • PaaS (platform as a service)

A couple of new and organic verticals below to illustrate high innovation and product development.


Logo is the largest provider of e-Services (e-invoice, e-archive, e-dispatch, e-signature) approved by the Revenue Administration GIB (“IRS/Skatteverket”) in Turkey. A new communique by GIB was published and became law late 2019: from a tax perspective most companies and self-employed people are now required to switch to e-services. A product suite that was developed as a convenience has suddenly become mandatory because of a state initiative. Growing users +120% YoY to an astounding 44 000 once again illustrates the scalability of an established and leading software company. Looking at American or European peers I believe we’ve just scratched the surface of the growth e-invoice/e-signature entails.

Digital Services

Isbasi, a cloud-based application suite (SaaS) enabling revenue administration, accounting, e-inovice, inventory tracking, summary reports and e-commerce modules for Micro SMEs. Developed in-house, launched late 2018 and reached 49 000 users in only 18 months. According to management ERP penetration for mSMEs is a mere 3% making this another opportunistic growth vertical.

The Premium/Total package costs 39:- (SEK) while Swedish peer Fortnox 599:-. The price difference is 15x while the GDP/Capita difference is 5.5x. Not a valid comparison in many ways but does reveal a reasonable and possible growth runway.

Logo India

Indias first GST (Goods and Service Tax) was introduced 2017 - criticized by the World Bank being too complex and demanding for the tax filer. GSTN - the portal where you as an entity or private individual can file tax and supply documents - only has 8 approved and connected software solutions, of which Logo Vyapari is one. Furthermore, of these 8 approved solutions only 4 are mobile. Vyapari is Logos SaaS venture in India. An application suite similar to Isbasi sharing the same source code making it a low-cost option in a new high growth market.


Complementing its HR solutions Logo acquired Peoplise early 2020. Enabling 100% digital talent acquisition for mid to large companies. First half of 2020 demand for Work-From-Home solutions made new corporate users grow 170% YoY, and screen time (conducting online interviews, surveys etc) 250%.

The Elephant In The Room

What if I told you about a country that will have 9 defaults, payments in dollars suspended on numerous occasions and a currency that lost -80% of its value in only 5 years - would you invest? Mercado Libre - incorporated in Argentina - managed to 10x under these macro headwinds. I earlier mentioned an Italian IT-vendor outgrowing GDP by 15% annually, and it is my investment philosophy that great entrepreneurs and private companies are to be found - and can thrive - (almost) anywhere.

Erdogan was elected office in 2003 and Turkey subsequently had inflation in check for 10 years. FDI (foreign direct investments) were increasing every year and GDP was compounding faster than Poland. The TRY was flat to the USD for almost 10 years (!) and negotiations of entering the EU as a member was very much real. Then…

Turkey had runaway inflation 2018-2019, huge currency depreciation, strong-armed the central bank to cut interest rates while inflation was running hot, capital controls which of course was followed by capital outflows. Turkey was sanctioned by the US - a fellow NATO member - and almost got entangled in a proxy war with Russia. And so on…
Disclaimer: Turkey is undoubtedly a high risk market and you need to size your positions accordingly. This case - or whichever investment - must outgrow a high single digit annual currency depreciation with a sizable margin, and you must expect severe price volatility.

A Snapshot

Turkey had its GDP ($) 3x 2002-2017 and is currently the 19th largest economy in the world (IMF, 2019) on a nominal ($) basis and 13th PPP-adjusted. The economy is larger than Switzerland, Poland, Sweden, Israel and Singapore - to name a few.

Ericsson, 3M, BASF, Ford, Schneider and Huawei are a few global players with manufacturing and research and development in Turkey. The World Banks® annual Ease of Doing Business 2020 Ranking rates Turkey 33rd - up 30 spots in just 3 years - surpassing Poland and Israel. The Global Competitiveness Report 2019 by the World Economic Forum® ranks Turkey ahead of Vietnam and Brazil.

Turkeys IT and software spending are below EU28 and the worldwide average as a percentage of GDP (IDC). In 2017 ERP penetration of Turkey was half of the EU28 average (Eurostat). Enterprises using Cloud Computing was 10% compared to 57% in Sweden. For Turkey to stay competitive and close the gap to international peers it is reasonable to expect national IT investment to be increased.

The most enticing thing about Turkey, however, is the huge population of 83 million - of which 50% is below the age of 30.

The Numbers

Name: Logo (LOGO:Istanbul)
Shares outstanding: 25 000 000
Price: 84
Market cap: 2 100 m TRY / 288 m USD

The growth has been nothing but phenomenal the last 10 years:

There has been no share dilution which is pretty much unique within this sector, and especially with this kind of breakneck top line growth. Management was able to compound profits 40% annually, for 10 years, with improved margins and a 5-year ROE at 29%.

All right, it’s a growth machine - but how about shareholder return? Logo outperformed peers on a dollar adjusted basis with a huge margin. Microsoft, being one of the best performing stocks of the last decade - and the USD close to a 10-year high against most currencies - sure make these returns impressive.

Writing this (Friday, august 7) Logo just presented their Q2:
-Net profits +41%
-Debt free / 10% of market cap in cash
-Net working capital as % of sales at a 6-year low
-Margins up several percentage points
-EPS (LTM) 4,19 making it P/E 20.0

If I perform a 60-second-back-of-the-envelope-valuation with somewhat conservative assumptions this debt free software company is trading at p/e 15 next year….

Since 2012 Logo has managed to double its market share (Enterprise Application Software) and is #1 in terms of users (Citigroup, IDC). I can’t see a company Deloitte awarded Technology Big Star Award 2019 gets dethroned any time soon.

Long 4% of my portfolio at 76 (24/06) and increased to 6% at 80 (06/08).
Do you own due-diligence.
I’m holding shares and obviously biased.
Please read all risk-chapters the annual report before investing.

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