OneVue Holdings (OVH)

Transcription

1 7 August 2017 Analyst Lafitani Sotiriou Associate Analyst James Filius Authorisation TS Lim OneVue Holdings (OVH) FY17 result to show cost-out progress Recommendation Buy (unchanged) Price $0.56 Target (12 months) $0.95 (previously $0.98) GICS Sector Diversified Financials Expected Return Capital growth 69.6% Dividend yield 0.0% Total expected return 69.6% Company Data & Ratios Enterprise value Market cap $128.9m $147.5m Issued capital 263.3m Free float 87% Avg. daily val. (52wk) $181, month price range $0.47-$0.715 Price Performance (1m) (3m) (12m) Price (A$) Absolute (%) Rel market (%) Looking to FY17 result show cost-out progress OVH is set to release its FY17 result on Monday, 28 August, where we expect the company to deliver a profitable full year result and for evidence of the $4m pre-tax cost out program to show. We are forecasting underlying EBITDA of $4.5m for FY17e, with 2H17e including a full period contribution from the DVA merger. Further, in the recent quarterly update OVH displayed growth in three of the four divisions, with Super Trustee Services being flat over the quarter due to a lost client (however the division Funds Under Trusteeship still grew 21% over the year). A highlight of the update includes Platform Services netflows of $154m compared to our $140m estimate, (up 52% vs pcp), and Fund Services unit registry business growing 19% over the last year (when using FUA as a measurement). OVH has flagged it anticipates doubling the unit registry business over the years ahead (based on contracted business). June quarter highlights Below are OVH s June quarter highlights: Fund Services Unit Registry FUA up 5.1% over the quarter to $489.1 billion; Super Services FUA up 8.2% over the quarter to $1,956m; Platform Services FUA up 2.8% over the quarter to $4.0 billion; Platform Services net-flows of $154m (up 52% vs pcp); and Super Trustee Services FUT flat over the quarter at $9.4 billion. Earnings revisions Following the quarterly update we have trimmed our underlying EPS by -1.3%, -3.5%, and -0.9% for FY17, FY18 and FY19 respectively. The adjustment is largely driven by the lost client in Super Trustee Services. Following the changes our revised Price Target is $0.95 per share (previously $0.98), with our Buy recommendation remaining unchanged. Absolute Price $1.00 $0.90 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 Aug 15 Feb 16 Aug 16 Feb 17 Aug 17 SOURCE: IRESS OVH S&P 300 Rebased BELL POTTER SECURITIES LIMITED ABN AFSL Earnings Forecast Year end June e 2018e 2019e Revenue (A$m) Underlying EBITDA (A$m) NPAT (reported) $m NPAT (underlying) $m EPS (underlying) (cps) EPS growth (%) 200% 46% Underlying PER (x) Price/CF (x) EV/EBITDA (x) Dividend ( ps) Yield (%) 0.0% 0.0% 0.0% 5.0% ROE (%) -13.3% 3.6% 8.0% 10.9% Franking (%) na na na 0.0% SOURCE: BELL POTTER SECURITIES ESTIMATES DISCLAIMER: THIS REPORT MUST BE READ WITH THE DISCLAIMER ON PAGE 7 THAT FORMS PART OF IT. Page 1

2 Net-flows and other estimates Figure 1 - Quarterly Platform Services net-flow and FUA estimates OneVue Holdings (OVH) FY15 1Q 2Q 3Q 4Q FY16 1Q 2Q 3Q 4Q FY17 1Qe 2Qe 3Qe 4Qe FY18e Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Jun-18 Platform Services FUA ($m) Opening Retail FUA 1,940 3,075 3,094 3,252 3,158 3,075 3,289 3,252 3,781 3,907 3,289 4,018 4,210 4,405 4,580 4,018 Market and other Net-flow s Closing Retail FUA 3,075 3,094 3,252 3,158 3,289 3,289 3,252 3,781 3,907 4,018 4,018 4,210 4,405 4,580 4,809 4,809 7% 5% 16% 24% 22% 22% 29% 17% 17% 20% 20% Closing FUA 3,075 3,094 3,252 3,158 3,289 3,289 3,252 3,781 3,907 4,018 4,018 4,210 4,405 4,580 4,809 4,809 Average FUA 2,711 3,140 3,233 3,174 3,441 3,902 3,649 4,211 4,598 4,404 Super Trustee Services FUT ($m)* Super Trustee Closing FUT ($m) 6,493 6,994 7,200 7,796 7,796 8,439 8,882 9,436 9,401 9,401 9,871 10,365 10,883 11,427 11,427 Grow th vs pcp 30% 27% 31% 21% 21% 17% 17% 15% 22% 22% Average FUT 8,372 9,240 8,791 9,879 10,891 10,389 *Acquired in October 2016 Figure 2 - Platform Services FUA growth ($m) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Figure 3 - Platform Services quarterly net-flows ($m) Figure 4 - Super Trustee Services FUT ($m) 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 Figure 5 - Fund Services Unit Registry FUA ($ billion) Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Page 2

3 OneVue Holdings Overview Company Description OneVue (OVH) is an emerging financial services technology company leveraged to the burgeoning superannuation system in Australia. The company has grown since 2007 through selective bolt-on acquisitions coupled with its own Research and Development to create the company that we see today. The company has carved out its niche as a trusted provided of back-and-middle office administration with deep multi-year and multi-faceted relationships across the financial services industry. OVH is split into three divisions as highlighted below: 1 Fund Services. OVH provides back/middle office solutions for investment managers, custodians and trustees via a full service outsourced unit registry, or by providing its installed software via a licence fee. Following the recent acquisition of Select Group, the Fund Services division now provides Responsible Entity (RE) and trustee services, which complements the existing offering. 2 Platform Services. OVH is an Investment Platform provider with closing retail FUA over $3 billion at the end of September The key segments of retail super, SMSF and IDPS are covered, in addition to next-generation capabilities surrounding SMA/Managed Accounts and with strong web solutions for the digital investor. Following the Select Group acquisition the Platform Services division provides investment management and implemented portfolio consulting services (which includes a fund-of-fund manager). 3 Super Services. OVH provides third party administration services to the superannuation industry. These services include data management, member communication, as well as contribution and benefit payment processing. OVH entered Superannuation Administration with the November 2015 acquisition of Super Managers Australia Pty Ltd (SMA), a business with over 22,000 members and FUA in excess of $1.1 billion. OVH acquired Diversa (DVA) in October Investment strategy We believe Australia has a key competitive advantage in the provision of financial technology solutions given our large superannuation sector and educated workforce. We believe one of the emerging stars is OVH, given its technology and automation focus and its market positioning. Risks Forecast growth not realised There is a risk that the projections provided by OneVue are not realised; Increased Competition risk OneVue operates in a competitive market landscape and is exposed to the possibility of increased risk; Regulatory risk - OneVue is regulated by multiple agencies and any changes in the regulatory regimes under which it operates may affect the financial performance and capital requirements of the group; Market risk A prolonged recession, economic crisis/shock, or other factors that may lead to a sustained weak market environment have the ability to adversely affect the earnings potential of the company. In addition, being a listed stock, the share price may be subject to volatility and fluctuations in price from time to time; Page 3

4 Technology risk There is a risk that existing technologies that OneVue provides will be superseded or made redundant by new technologies or players in the market. Further there is a risk that there may be a failure in software or systems that OneVue relies on; Operational risk The operation of OneVue may be affected by various factors, including failures in internal controls. The clients of OneVue would be particularly sensitive to any operational issues; Key client risk The departure of a major client could cause a loss of earnings to OneVue. By contrast, any major client win would be seen as a positive catalyst. OneVue has no client that represents more than 12% of revenue; Key person risk Similar to other small capitalised stocks, the loss of any key staff may be detrimental to OneVue; and Risk associated with acquisitions OneVue has acquired many businesses in the last three years and is expecting to make further acquisitions. Each acquisition brings with it execution, reputational, pricing risk and a variety of other issues including all stakeholder satisfaction. Page 4

5 Interim earnings Figure 6 - Interim earnings INTERIM INCOME STATEMENT Y/e June 30 ($m) H16 2H H17 2H17e 2017e 1H18e 2H18e 2018e 1H19e 2H19e 2019e Sales revenue EBITDA Depreciation & Amortisation EBIT Net Interest Pre-tax profit Tax R&D tax incentive receipt Operating NPAT One-off items Reported net profit Cash NPAT SEGMENTALS FUND SERVICES ($M) H16 2H H17 2H17e 2017e 1H18e 2H18e 2018e 1H19e 2H19e 2019e Total Unit Registry Services revenue Total Superannuation Services Revenue Total Fund Services Revenue One-off revenue items Underlying Fund Services Revenue Total expenses of which one-off expenses Total underlying expenses Underying EBITDA Reported EBITDA PLATFORM SERVICES ($M) H16 2H H17 2H17e 2017e 1H18e 2H18e 2018e 1H19e 2H19e 2019e Total Platform Services revenue One-off revenue items Total underlying Platform Services revenue Closing FUA $m 3,075 3,252 3,289 3,289 3,781 4,018 4,018 4,405 4,809 4,809 5,237 5,682 5,682 Average FUA $m 2,711 3,140 3,233 3,174 3,441 3,902 3,649 4,211 4,598 4,404 5,022 5,450 5,236 Average margin (bps) Total expenses of which one-off expenses Total underlying expenses Underying EBITDA Reported EBITDA SUPERANNUATION TRUSTEE SERVICES ($M) H16 2H H17 2H17e 2017e 1H18e 2H18e 2018e 1H19e 2H19e 2019e Total Super Trustee Services Revenue One-off revenue items Total underlying Super Trustee Services revenue Total expenses of which one-off expenses Total underlying expenses Underying EBITDA Reported EBITDA Remaining DVA synergies CORPORATE ($M) H16 2H H17 2H17e 2017e 1H18e 2H18e 2018e 1H19e 2H19e 2019e Revenue of which are one-off revenue items Underlying Corporate revenue Expenses of which one-off expenses Total underlying Corporate expenses Underlying EBITDA Reported EBITDA Page 5

6 OneVue Holdings as at 7 August 2017 Recommendation Buy Price $0.56 Target (12 months) $0.95 OneVue Holdings (OVH) 7 August 2017 Table 1 - Financial summary OneVue (OVH) Price Target (A$) 0.95 Share Price (A$) 0.56 Recommendation: Buy Market Cap (A$m) INCOME STATEMENT VALUATION DATA Y/e June 30 ($m) e 2018e 2019e Y/e June 30 ($m) e 2018e 2019e Sales revenue Underlying NPAT ($m) Operating Expenses Underlying EPS (c) EBITDA Underlying EPS growth (%) 200% 46% Depreciation & Amortisation Underlying P/E ratio (x) EBIT CFPS (c) Net Interest Price/CF (x) Pre-tax profit DPS (c) Tax Yield (%) 0.0% 0.0% 0.0% 0.0% 5.0% R&D tax refund Franking (%) na na na na 0% Operating NPAT EV/EBITDA (x) One-off items Price/book (x) Reported net profit NTA ($) Underlying NPAT Cash NPAT* PROFITABILITY RATIOS Y/e June 30 ($m) e 2018e 2019e CASHFLOW EBIT/sales (%) -6% -15% 1% 15% 21% Y/e June 30 ($m) e 2018e 2019e Return on assets (%) -7% -11% 1% 7% 10% EBITDA Return on equity (%) -3% -13% 4% 8% 11% Change in provisions Dividend cover (x) na na na na 1.4 Working capital change Effective tax rate (%) 0% 0% na 0% 17% Net interest Tax paid LIQUIDITY AND LEVERAGE RATIOS Other Y/e June 30 ($m) e 2018e 2019e Operating cashflow Net debt/(cash) ($m) Capex Net debt/equity (%) -40% -51% -22% -30% -36% Investments Current ratio (x) Asset sales Other INTERIMS Free cash flow Half end December 31 ($m) 1H16 1H17 1H18e 1H19e 1H20e Change in borrowings Sales revenue Equity raised (net) EBIT Dividends paid Pre tax profit Other Adjusted profit Financing cashflow One-off items Net change in cash Reported profit Cash at end of period Interim DPS (cents) BALANCE SHEET SEGMENTALS Y/e June 30 ($m) e 2018e 2019e Y/e June e 2018e 2019e Cash Fund Services Receivables Underlying Revenue PPE Underlying Expenses Intangibles Underlying EBITDA Other Total assets Platform Services Payables Underlying Revenue Debt Underlying Expenses Provisions Underlying EBITDA Other Total liabilities Superannuation Trustee Services Shareholders equity Underlying Revenue Total shareholders funds Underlying Expenses Underlying EBITDA W/A diluted shares on issue Corporate Underlying Revenue * Our Cash NPAT adds back our estimate for acquisition related amortisation Underlying Expenses Note: Segmentals restated from FY16 onwards post Diversa consolidation Underlying EBITDA Remaining DVA Synergies SOURCE: BELL POTTER SECURITIES ESTIMATES Total Underlying Revenue Underlying Expenses Underlying EBITDA Page 6

7 Recommendation structure Buy: Expect >15% total return on a 12 month view. For stocks regarded as Speculative a return of >30% is expected. Research Team Staff Member TS Lim Sam Haddad Chris Savage Title/Sector Head of Research Phone tslim shaddad csavage Hold: Expect total return between -5% Jonathan Snape jsnape and 15% on a 12 month view Tim Piper tpiper Sell: Expect <-5% total return on a 12 month view John Hester Tanushree Jain Financials Healthcare Healthcare/Biotech jhester tnjain Speculative Investments are either start-up enterprises with nil or only prospective operations or recently commenced operations with only forecast cash flows, or companies that have commenced operations or have been in operation for some time but have only forecast cash flows and/or a stressed balance sheet. Such investments may carry an TS Lim Lafitani Sotiriou Peter Arden David Coates Duncan Hughes Associates James Filius Alexander McLean Banks/Regionals Diversified Financials Associate Analyst Associate Analyst tslim lsotiriou parden dcoates dhughes jfilius amclean exceptionally high level of capital risk and volatility of returns. Bell Potter Securities Limited ACN Level 38, Aurora Place 88 Phillip Street, Sydney 2000 Telephone The following may affect your legal rights. Important Disclaimer: This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. In Hong Kong this research is being distributed by Bell Potter Securities (HK) Limited which is licensed and regulated by the Securities and Futures Commission, Hong Kong. This is general investment advice only and does not constitute personal advice to any person. Because this document has been prepared without consideration of any specific client s financial situation, particular needs and investment objectives ( relevant personal circumstances ), a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the representative of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be made aware of your relevant personal circumstances and consulted before any investment decision is made on the basis of this document. While this document is based on information from sources which are considered reliable, Bell Potter Securities Limited has not verified independently the information contained in the document and Bell Potter Securities Limited and its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility for updating any advice, views opinions, or recommendations contained in this document or for correcting any error or omission which may become apparent after the document has been issued. Except insofar as liability under any statute cannot be excluded. Bell Potter Securities Limited and its directors, employees and consultants do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in this document or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of this document or any other person. Disclosure of interest: Bell Potter Securities Limited, its employees, consultants and its associates within the meaning of Chapter 7 of the Corporations Law may receive commissions, underwriting and management fees from transactions involving securities referred to in this document (which its representatives may directly share) and may from time to time hold interests in the securities referred to in this document. Lafitani Sotiriou owns 130,000 shares in OVH. ANALYST CERTIFICATION Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers and were prepared in an independent manner and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. Page 7