Praemium (PPS) COMPANY REPORT. Model performance

Transcription

1 14 August 2017 INTERNAL ONLY RECOMMENDATIONS Rating BUY Risk High Price Target $0.58 Share Price $0.41 SNAPSHOT Monthly Turnover $9.5mn Market Cap $165mn Shares Issued 398.5mn 52-Week High $ Week Low $0.32 Sector Information Technology BUSINESS DESCRIPTION Praemium is a technology provider to the global wealth management sector. It provides technology platforms for investment and portfolio administration, separately managed accounts (SMAs) and financial planning. PPS administers over 300,000 client accounts, has over $80bn in assets under administration and has relationships with over 900 institutions. PPS has operations in Australia, Europe and Asia. 12-MONTH PRICE & VOLUME RESEARCH ANALYST Nicolas Burgess, CFA nburgess@baillieuholst.com.au Piers Flanagan pflanagan@baillieuholst.com.au Josh Kannourakis jkannourakis@baillieuholst.com.au Disclosure The author owns no shares in PPS. Praemium (PPS) COMPANY REPORT Model performance Overall: PPS s underlying earnings result was a touch ahead of our expectations, with excellent revenue trends and margin expansion. BUY. FY17 result: PPS reported underlying EBITDA of $6.3m, up 54% over the year and just ahead of our equivalent forecast of $6.0m. Pre-tax profit of $2.2m was just below our $2.6m forecast due to one-off expenses (total normalised costs of $3.2m were higher than our $2.5m forecast due to restructuring). Profit after tax of $0.7m was also less-than-expected with a tax expense of $1.5m, much higher than our $1.0m forecast. Drivers/surprises: FY17 gross revenue of $35.4m was up 17% and in line with our forecast of $35.8m. By product type, SMA revenue was up 44% to $17.2m on the back of 28% growth in funds under administration (FUA) and improving sales from PPS s in-house investment management products. Portfolio Services recorded 8% revenue growth to $14.7m, driven by new client wins. Underlying expenses of $29.1m were up 11% over the year and less than our forecast $30.3m, driving 54% growth in EBITDA to $6.3m. The Australian business reported EBITDA of $10.6m at a margin of 46%, whilst the UK saw its EBITDA loss improve 33% over the year to -$2.2m. Overall, the company improved its EBITDA margin from 14% in FY16 to 18% in FY17. Key takeaways: Since 1 Jul-17, PPS has grown its Australian SMA FUA by 7.2% to $4.15bn and the International SMA FUA by 5.4% to $ 1.37bn, reflecting a very strong start to the year. Meanwhile, the company remains well capitalised with no debt and $9.0m cash in the bank. Changes to EPS: We increase our FY18F underlying EPS forecasts by 2.6% and reduce our FY19F forecasts by 9.4%. Our valuation and price target increase from $0.55 to $0.58 given the roll-forward. Investment view: PPS continues to show good momentum across new business flows, funds under administration, revenue and profit. We reiterate a BUY rating. Key attributes of our investment thesis include a growing managed accounts market as retail investor s switch from other fund structures, growth initiatives from higher margin products in international markets, new capabilities and scale following strategic acquisitions and potential corporate appeal (wealth technology likely to be part of the next wave of financial service consolidation, in our view). The company s valuation is not demanding trading on an FY18F PE of 31x with a two-year EPS CAGR of 37% EPS growth. INVESTMENT SUMMARY Year End: 30 June 2016 (A) 2017 (A) 2018 (E) 2019 (E) 2020 (E) Revenue $mn EBITDA $mn EBIT $mn Reported Profit $mn Adjusted Profit $mn EPS (Reported) EPS (Adjusted) EPS Growth % N/A PER (Reported) x PER (Adjusted) x Dividend Yield % Franking % Baillieu Holst Ltd ABN Please read the disclaimer at the end of this report. Page 1

2 Financial summary Code: PPS Rating: BUY Analyst: Nicolas Burgess Price Target: $0.58 Date: 14 August, 2017 Upside/downside: 41.8% Share Price: $0.41 Valuation: $0.48 Market Capitalisation: $163m Valuation method: DCF / EV/EBITA Year End: 30 June Risk: High PROFIT & LOSS (A$m) FY16A FY17A FY18E FY19E FY20E EARNINGS FY16A FY17A FY18E FY19E FY20E Net revenue EPS - Underling cash (diluted) Operations EPS Growth - underlying 214% 76% 34% 40% 18% Gross Margin EPS - Reported (diluted) Costs Diluted shares (m) EBITDA DPS (cps) Depreciation & amortisation Payout Ratio 0% 0% 0% 51% 50% EBIT Franking 0% 0% 0% 0% 100% Other Net interest VALUATION FY16A FY17A FY18E FY19E FY20E PBT Underlying P/E (x) Tax EV/EBITDA (x) Minorities EV/EBIT (x) Reported NPAT Dividend Yield (%) 0.0% 0.0% 0.0% 2.3% 2.7% Price/Book (x) Add back: Price/NTA (x) Non-recurring items (net tax) Price/FCF Underlying cash profit GROWTH FY16A FY17A FY18E FY19E FY20E Revenue growth 20.1% 11.9% 18.1% 18.8% 10.6% BALANCE SHEET (A$m) FY16A FY17A FY18E FY19E FY20E Operating cost growth 1.6% 9.7% 13.9% 18.8% 10.6% Assets EBITDA growth 90.9% 50.0% 48.0% 41.4% 17.0% Cash PBT growth 8.1% 33.8% 226.9% 51.2% 23.2% Receivables Underlying NPAT growth % -22.6% 627.6% 51.2% 23.2% PPE Reported NPAT growth % 76.8% 34.7% 41.2% 18.7% Intangibles MARGINS & RETURNS FY16A FY17A FY18E FY19E FY20E Tax assets EBITDA Margin 14.3% 19.2% 24.1% 28.7% 30.3% Other assets EBIT Margin 11.4% 16.3% 21.1% 26.0% 27.8% Total Assets NPBT Margin 5.5% 6.6% 18.2% 23.2% 25.9% Liabilities ROIC 42.0% 26.4% 83.4% 197.9% 1237% Payables ROE 13.9% 23.7% 26.9% 30.9% 31.5% Debt ROA 18.3% 26.5% 34.7% 38.9% 36.5% Provisions Effective Tax Rate 49.5% 70.8% 35.0% 35.0% 35.0% Other liabilities Total Liabilities GEARING FY16A FY17A FY18E FY19E FY20E Equity Net Debt / (cash) (A$m) Share capital Enterprise value Retained earnings Net Debt/Equity (%) -64% -53% -71% -91% -102% Other equity EBITDA/Net interest na na na na na Total shareholders equity OPERATIONAL DATA FY16A FY17A FY18E FY19E FY20E Revenue by Product (A$m): BV per share (cps) Portfolio Services NTA per share (cps) SMA - Australia SMA - Intenational Financial Planning CASH FLOW (A$M) FY16A FY17A FY18E FY19E FY20E Corporate / other Cash at Start Group revenue Cash from from ops Growth 23.4% 17.6% 17.5% 18.2% 10.5% Capex Free cash flow Funds on Platform (A$bn): Free cash flow per share (cps) Australia Cash flow from investing International Cash flow from financing Group Cash at end Growth 25.2% 27.3% 35.3% 29.4% 26.5% GOCF / EBITDA 20% 76% 95% 95% 95% FCF / Underlying cash NPAT 23% 17% 132% 130% 129% Baillieu Holst Ltd ABN Please read the disclaimer at the end of this report. Page 2

3 Model performance Overall: PPS s underlying earnings result was a touch ahead of our expectations, with excellent revenue trends and margin expansion. BUY. FY17 result: PPS reported underlying EBITDA of $6.3m, up 54% over the year and just ahead of our equivalent forecast of $6.0m. Pre-tax profit of $2.2m was just below our $2.6m forecast due to one-off expenses (total normalised costs of $3.2m were higher than our $2.5m forecast due to restructuring). Profit after tax of $0.7m was also less-than-expected with a tax expense of $1.5m, much higher than our $1.0m forecast. FIG.1: PPS FY17 RESULT SUMMARY FY17 gross revenue of $35.4m was up 17% and in line with our forecast of $35.8m. By product type, SMA revenue was up 44% to $17.2m on the back of 28% growth in funds under administration (FUA) and improving sales from PPS s in-house investment management products. Portfolio Services recorded 8% revenue growth to $14.7m, driven by new client wins. Underlying expenses of $29.1m are up 11% over the year and less than our forecast $30.3m, driving 54% growth in underlying EBITDA to $6.3m. The Australian business reported EBITDA of $10.6m at a margin of 46%, whilst the UK saw its EBITDA loss improve 33% over the year to -$2.2m. Overall, the company improved its EBITDA margin from 14% in FY16 to 18% in FY17. Baillieu Holst Ltd ABN Please read the disclaimer at the end of this report. Page 3

4 FIG.2: PPS FY17 RESULT BY GEOGRAPHY Key takeaways: Since 1 Jul-17, PPS has grown its Australian SMA FUA by 7.2% to $4.15bn and the International SMA FUA by 5.4% to $ 1.37bn, reflecting a very strong start to the year. Meanwhile, the company remains well capitalised with no debt and $9.0m cash in the bank. FIG.3: PPS FY17 RESULT AUSTRALIA HIGHLIGHTS Changes to EPS: We increase our FY18F underlying EPS forecasts by 2.6% and reduce our FY19F forecasts by 9.4%. Baillieu Holst Ltd ABN Please read the disclaimer at the end of this report. Page 4

5 FIG.4: PPS FY17 RESULT INTERNATIONAL HIGHLIGHTS Investment view We reiterate a BUY rating. Our valuation and price target increase from $0.55 to $0.58 due to the year-end rollforward. PPS continues to show good momentum across new business flows, funds under administration, revenue and profit. Key attributes of our investment thesis include a growing managed accounts market as retail investor s switch from other fund structures, growth initiatives from higher margin products in international markets, new capabilities and scale following strategic acquisitions and potential corporate appeal (wealth technology likely to be part of the next wave of financial service consolidation, in our view). The company s valuation is not demanding trading on an FY18F PE of 31x with a two-year EPS CAGR of 37% EPS growth. FIG.5: PPS STRATEGIC PRIORITIES Baillieu Holst Ltd ABN Please read the disclaimer at the end of this report. Page 5

6 Appendix FIG.6: LONG TERM MOMENTUM INDICATORS Source: Iress FIG.7: SHORT TERM MOMENTUM INDICATORS Source: Iress Baillieu Holst Ltd ABN Please read the disclaimer at the end of this report. Page 6

7 This document has been prepared and issued by: Baillieu Holst Ltd ABN Australian Financial Service Licence No Participant of ASX Group Participant of NSX Ltd Analysts stock ratings are defined as follows: Buy: The stock s total return is expected to increase by at least percent from the current share price over the next 12 months. Hold: The stock s total return is expected to trade within a range of ±10-15 percent from the current share price over the next 12 months. Sell: The stock s total return is expected to decrease by at least percent from the current share price over the next 12 months. Baillieu Holst Analysts stock ratings distribution as of 30 May 2017: Buy: 64% Hold: 33% Sell: 3% Disclosure of potential interest and disclaimer: Baillieu Holst Ltd (Baillieu Holst) and/or its associates may receive commissions, calculated at normal client rates, from transactions involving securities of the companies mentioned herein and may hold interests in securities of the companies mentioned herein from time to time. Your adviser will earn a commission of up to 55% of any brokerage resulting from any transactions you may undertake as a result of this advice. When we provide advice to you, it is based on the information you have provided to us about your personal circumstances, financial objectives and needs. If you wish to rely on our advice, it is important that you inform us of any changes to your personal investment needs, objectives and financial circumstances. If you do not provide us with the relevant information (including updated information) regarding your investment needs, objectives and financial circumstances, our advice may be based on inaccurate information, and you will need to consider whether the advice is suitable to you given your personal investment needs, objectives and financial circumstances. Please do not hesitate to contact our offices if you need to update your information held with us. Please be assured that we keep your information strictly confidential. No representation, warranty or undertaking is given or made in relation to the accuracy of information contained in this advice, such advice being based solely on public information which has not been verified by Baillieu Holst Ltd. Save for any statutory liability that cannot be excluded, Baillieu Holst Ltd and its employees and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Baillieu Holst Ltd assumes no obligation to update this advice or correct any inaccuracy which may become apparent after it is given. Baillieu Holst Ltd ABN Australian Financial Service Licence No Participant of ASX Group Participant of NSX Ltd Melbourne (Head Office) Address Level 26, 360 Collins Street Melbourne, VIC 3000 Australia Postal PO Box 48, Collins Street West Melbourne, VIC 8007 Australia Phone Facsimile melbourne@baillieuholst.com.au Adelaide Office Address Ground Floor, 226 Greenhill Road, Eastwood SA 5063 Postal PO Box 171 Fullarton SA 5063 Phone Facsimile adelaide@baillieuholst.com.au Bendigo Office Address Level 1, Forest Street Bendigo, VIC 3550 Postal PO Box 84 Bendigo, VIC 3552 Phone Facsimile bendigo@baillieuholst.com.au Geelong Office Address 16 Aberdeen Street Geelong West Vic 3218 Postal PO Box 364 Geelong Vic 3220 Australia Phone Facsimile geelong@baillieuholst.com.au Gold Coast Office Address Suite 202 Level 2, Eastside Building 6 Waterfront Place, Robina QLD 4226 Phone Facsimile goldcoast@baillieuholst.com.au Newcastle Office Address Level 1, 120 Darby Street Cooks Hill, NSW 2300 Australia Postal PO Box 111 The Junction, NSW 2291 Australia Phone Facsimile newcastle@baillieuholst.com.au Perth Office Address Level 10, 191 St Georges Terrace Perth WA 6000 Australia Postal PO Box 7662, Cloisters Square Perth, WA 6850 Australia Phone Facsimile perth@baillieuholst.com.au Sydney Office Address Level 40, 259 George Street Sydney, NSW 2000 Australia Postal PO Box R1797 Royal Exchange, NSW 1225 Australia Phone Facsimile sydney@baillieuholst.com.au Baillieu Holst Ltd ABN Page 7