Praemium (PPS) COMPANY REPORT. Quartermaster

Transcription

1 10 October 2017 INTERNAL ONLY RECOMMENDATIONS Rating BUY Risk High Price Target $0.58 Share Price $0.45 SNAPSHOT Monthly Turnover $9.2mn Market Cap $162mn Shares Issued 399.6mn 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 Disclosure The author owns no shares in PPS. Praemium (PPS) COMPANY REPORT Quartermaster Overall: PPS has delivered 9% quarterly growth in funds under administration in 1Q18, maintaining recent strong momentum, with a record quarter of inflows for the Australian business. We reiterate a BUY. Funds under administration (FUA): PPS reported group FUA of $6.7bn, up 31% over the year and 9% over the quarter. In Australia, FUA increased to $4.3bn, up 30% over the year and 11% over the quarter. In the UK, FUA of $2.4bn was up 35% over the year and 6% over the quarter (34% and 4% respectively on a constant currency basis). Flows: Australia recorded gross inflows of $587m, a record quarter with even contribution between new and existing clients. UK gross inflows of $162m were the third highest on record but lower than the last couple of results given the quieter European holiday season (as expected). Other points: PPS s Australian Super SMA now has $716m in FUA and accounts for 17% of total Australian FUA. PPS s in-house investment management products and models continue to grow, up 53% over the year to 440m (A$753m). Meanwhile, PPS has flagged additional investment in technology, product, and sales and marketing to accelerate growth momentum. No quantification has been given, although this is a consistent theme from the company over the last two years. We note the recent hire (4 Oct) of a new Head of Product and Marketing. We make modest increases to our cost growth assumptions (see below) but generally we remain comfortable that our forecasts reflect the investment requirements of the business. Changes to EPS: We decrease our EPS forecasts by 1.5% and 0.5% in FY18F and FY19F respectively, adding $ m of investment which is largely offset by slightly better-than-expected revenue momentum. Our $0.58 price target remains unchanged. Investment view: PPS continues to show good momentum across new business flows and funds under administration. We reiterate a BUY rating. Key attributes of our investment thesis include a growing managed accounts market as retail investors 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). Valuation is not demanding trading on an FY18F PE of 34x with a two-year EPS CAGR of 37%. 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 % 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: 10 October, 2017 Upside/downside: 29.3% Share Price: $0.45 Valuation: $0.48 Market Capitalisation: $180m Valuation method: DCF / EV/EBITA Year End: 30 June Risk: High PROFIT & LOSS (A$m) FY16A FY17A FY18E FY19E FY20E EARNINGS FY16A FY17A FY18E FY19E FY20E Net revenue EPS - Underling cash (diluted) Operations EPS Growth - underlying 214% 76% 32% 41% 19% Gross Margin EPS - Reported (diluted) Costs Diluted shares (m) EBITDA DPS (cps) Depreciation & amortisation Payout Ratio 0% 0% 0% 49% 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% 2.0% 2.4% 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% 19.1% 19.6% 10.8% BALANCE SHEET (A$m) FY16A FY17A FY18E FY19E FY20E Operating cost growth 1.6% 9.7% 14.9% 19.6% 10.8% Assets EBITDA growth 90.9% 50.0% 46.0% 42.7% 17.8% Cash PBT growth 8.1% 33.8% 221.2% 53.0% 24.3% Receivables Underlying NPAT growth % -22.6% 615.1% 53.0% 24.3% PPE Reported NPAT growth % 76.8% 32.7% 42.6% 19.6% Intangibles MARGINS & RETURNS FY16A FY17A FY18E FY19E FY20E Tax assets EBITDA Margin 14.3% 19.2% 23.5% 28.1% 29.9% Other assets EBIT Margin 11.4% 16.3% 20.6% 25.5% 27.4% Total Assets NPBT Margin 5.5% 6.6% 17.8% 22.7% 25.5% Liabilities ROIC 42.0% 26.4% 82.2% 194.1% 1127% Payables ROE 13.9% 23.7% 26.5% 30.8% 31.4% Debt ROA 18.3% 26.5% 34.3% 38.7% 36.5% Provisions Effective Tax Rate 49.5% 70.8% 35.0% 35.0% 35.0% Other liabilities Total Liabilities GEARING FY16A FY17A FY18E FY19E FY20E Equity Net Debt / (cash) (A$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% 18.5% 19.0% 10.8% 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% 36.1% 29.4% 26.5% GOCF / EBITDA 20% 76% 95% 95% 95% FCF / Underlying cash NPAT 23% 17% 132% 130% 128% Baillieu Holst Ltd ABN Please read the disclaimer at the end of this report. Page 2

3 Quartermaster Overall: PPS has delivered 9% quarterly growth in funds under administration, maintaining recent strong momentum. We reiterate a BUY. FIG.1: PPS 1Q18 FUNDS UNDER ADMINISTRATION AND FLOWS Source: Company reports Funds under administration (FUA): PPS reported group FUA of $6.7bn, up 31% over the year and 9% over the quarter. In Australia, FUA increased to $4.3bn, up 30% over the year and 11% over the quarter. In the UK, FUA of $2.4bn was up 35% over the year and 6% over the quarter (34% and 4% respectively on a constant currency basis). FIG.2: PPS 1Q18 FUNDS UNDER ADMINISTRATION AND FLOWS Source: Company reports Flows: Australia recorded gross inflows of $587m, a record quarter with even contribution between new and existing clients. UK gross inflows of $162m were the third highest on record but lower than the last couple of results given the quieter European holiday season (as expected). FIG.3: PPS IN-HOUSE INVESTMENT MANAGEMENT Source: Company reports Baillieu Holst Ltd ABN Please read the disclaimer at the end of this report. Page 3

4 Other points: PPS s Australian Super SMA now has $716m in FUA and accounts for 17% of total Australian FUA. PPS s in-house investment management products and models continue to grow, up 53% over the year to 440m (A$753m). Meanwhile, PPS has flagged additional investment in technology, product, sales and marketing to accelerate growth momentum. No quantification has been given, although this is a consistent theme from the company over the last two years. We note the recent hire (4 Oct) of a new Head of Product and Marketing. We make modest increases to our cost growth assumptions (see below) but generally we remain comfortable that our forecasts reflect the investment requirements of the business. Changes to EPS: We decrease our EPS forecasts by 1.5% and 0.5% in FY18F and FY19F respectively, adding $ m of investment which is largely offset by slightly better-thanexpected revenue momentum. Our $0.58 price target remains unchanged. Investment view: PPS continues to show good momentum across new business flows and funds under administration. 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 34x with a two-year EPS CAGR of 37%. From a relative perspective, PPS remains priced at the lower end of sector metrics, as shown in the table below. FIG.4: WEALTH PLATFORM SECTOR EV/Sales EV/EBITDA PE Adjusted YE Adjusted YE Adjusted YE Company Price YE FY18F FY19F FY18F FY19F FY18F FY19F Praemium 0.45 Jun HUB Jun Managed Accounts 0.31 Jun OneVue Holdings 0.58 Jun IRESS Ltd Dec Average Source: Bloomberg Baillieu Holst Ltd ABN Please read the disclaimer at the end of this report. Page 4

5 Appendix FIG.5: LONG TERM MOMENTUM INDICATORS Source: Iress FIG.6: SHORT TERM MOMENTUM INDICATORS Source: Iress Baillieu Holst Ltd ABN Please read the disclaimer at the end of this report. Page 5

6 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 05 September 2017: Buy: 64% Hold: 32% Sell: 4% 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 6