Company Overview: Bravura Solutions Limited provides software products and services to clients operating in the wealth management and funds administration industries in the Asia-Pacific and Europe, Middle East and Africa regions. The Company's software products and services support the front-office, middle-office and back-office functions needed to manage and administer financial products across investment products and wrap platforms, superannuation, pension and retirement products, life insurance, private wealth and portfolio administration. It operates across two segments: Wealth Management, which provides software and services that support back-office functions relating to the management of investment products and wrap platforms, superannuation, pension and retirement products, and life insurance, and Funds Administration, which supports back-office administration requirements for a range of investment managers, custodians and third-party administrators for both retail and institutional customers.

BVS Details

Strong Sales Pipeline Augur well for Future Growth: Bravura Solutions Limited (ASX: BVS) is a provider of software solutions to the wealth management and fund administration industries. The company’s operations are spread across 12 offices situated in Australia, New Zealand, Asia, Africa, Europe and the UK. The company’s offerings are spread across two operating segments, namely, Wealth Management and Funds Administration. Sonata is a BVS solutions’ flagship software product, which provides rich and proven wealth management functionality. In FY19, the company’s performance depicted the strength of its product platform, with remarkable growth across revenue, EBITDA, and NPAT. The share of recurring revenue as a percentage of total revenue also increased in addition of new clients and increased demand from existing clients. While revenue of the Wealth Management segment was majorly driven by the performance of flagship product, Sonata, the Funds Administrations segment also made good progress, leading the digital solutions market. The period also saw a renewal of contracts with the company’s long-term partners, JPMorgan and Citi, for further five years each.

Over the period covering FY15 to FY19, the company has reported a top-line CAGR growth of 14.1% with FY15 and FY19 revenue amounting to $152.11 million and $258.21 million, respectively. On a segment basis, the company has seen a continuous upward movement in the Wealth Management revenue, underpinned by continued strong growth from Sonata, which now makes up almost all of the Wealth Management segment. Revenue from the Funds Administration segment has, however, been on an up and down scale with continuous development in the form of renewal of contracts and a pipeline of opportunities to support future growth.
Going forward, the company is eyeing strong sales opportunities out of significant project activity from existing clients. In addition, it is looking forward to the recent acquisition of Midwinter Financial Services being a strategic fit to the business and sees significant growth prospects in the form of AdviceOS, Midwinter’s core product.
 

Wealth Management Revenue (Source: Company Reports)

Financial Highlights of FY19: During the 12 months ended 30 June 2019, group revenue amounted to $257.7 million, up 16% on prior corresponding period revenue of $221.5 million. EBITDA for the year was reported at $49.1 million, up 27% on prior corresponding period EBITDA of $38.6 million. NPAT for the period stood at $32.8 million, up 21% on previous year NPAT of $27.0 million. Performance during the year was supported by robust growth across the product suite. Sonata, the company’s flagship product continued to deliver strong growth momentum. On the client front, the period was marked by commencement of production for a number of clients along with additional projects for new and existing clients. Another year of positive financial growth led to excellent shareholders returns with a return on equity of 22% and return on assets of 20%, depicting the prudent use of investments to generate earnings growth. The company paid an unfranked final dividend of 4.8 cents per share on 27 September 2019.

Wealth Management Segment Performance: With respect to Wealth Management segment, which is majorly comprised of the flagship product, Sonata, delivered revenue amounting to $176.8 million, up 14% on prior corresponding period revenue of $155.1 million. EBITDA for the segment stood at $53.9 million, up 17% in comparison to the prior corresponding period EBITDA of $46.2 million. Growth in the segment was driven by significant revenue contribution by Sonata from complex projects being delivered for new clients across key geographical markets. In addition, the segment also benefitted from strong demand from the existing global client base.

Funds Administration Segment Performance: Revenue for the Funds Administration segment amounted to $80.9 million, up 22% on prior corresponding period revenue of $66.4 million. EBITDA for the segment went up by 21%, from $26.7 million in FY18 to $32.3 million in FY19. Performance of the segment improved on the back of increased project work pertaining to a renewed contract from a significant global client and improved utilisation from the existing client base. Moreover, the company is eyeing further growth opportunities in existing and new geographies through its SaaS offering. During the year, the company reported continued growth in the client portfolio for Rufus SaaS, adding T Bailey Financial Services on the package.


FY19 Financial Performance (Source: Company Reports)
 
Acquisition of Midwinter: The company recently entered into an agreement for the acquisition of Midwinter Financial Services, which is expected to be a strong strategic fit for BVS’s business. Midwinter, through its core product AdviceOS, offers an extension to Bravura’s broad product suite in Australia and international markets. The acquisition will offer strong revenue and cross selling opportunities and is expected to be EPS accretive in the first year of ownership. The company will pay a cash consideration of A$50 million for the transaction.
 
Strong Financial Position: During the year, the company issued 28.7 million shares through placement, which was oversubscribed with significant demand from Australian and offshore institutional investors. The placement added to the company’s capacity to grab organic and acquisitive growth opportunities. Operating cash flow for the year was reported at $46.5 million, reflecting a cash conversion of 95%.
 
Moving ahead, the company is looking forward to increased market opportunities across key geographies with large financial institutions that may find the company’s product offering suitable to replace their high cost legacy or competitor systems. The company sees increased sales coming in the form of new clients and significant project activity from existing clients. While the foundation for growth in the Wealth Management segment is already in place, Bravura is now expecting its strong digital solutions capabilities to support growth in the Funds Administration segment.
 
Key Updates:

(a) Appointment of Chairman: The company recently appointed Neil Broekhuizen appointed as the new Chairman, post retirement of Brian Mitchell from the position.

(b) Change in Shareholding: As per another recent announcement, Vinva Investment Management ceased to be a substantial shareholder for Bravura Solutions Limited.
 
Top 10 Shareholders:  The top 10 shareholders have been highlighted in the table, which together form around 45.85% of the total shareholding. Wellington Management Company, LLP holds the maximum interest in the company at 13.43%, followed by Capital Research Global Investors holding 7.85% of the shares.
 

Top Ten Shareholders (Source: Thomson Reuters)

Key Metrics: During the year ended 30 June 2019, the company had a gross margin of 92.6%, up on prior corresponding year’s gross margin of 92.2%. The gross margin was also higher than the industry median of 82.7%. EBITDA margin for the year stood at 20.0% as compared to 18.2% in FY18. Net margin of the company at 12.7% for FY19 was also improved in comparison to FY18 and FY17 margin of 12.2% and 7.5%, respectively. Over the period, the company improved significantly on its short-term financial positions with FY19 current ratio at 3.08x, as compared to pcp ratio of 0.92x and industry median of 1.82x.


 Key Metrics (Source: Thomson Reuters)  

Outlook & Guidance: In FY20, the company expects to achieve NPAT growth in the mid-teens on account of strong recurring revenue and new sales opportunities. In FY19, recurring revenue formed went up by 31% in comparison to FY18. Recurring revenue as a percentage of total revenue also went up from 67% in FY18 to 76% in FY19. The company’s product suite is expected to drive further growth supported by continued long term demand from the client base. It is eyeing continued investment in Sonata that was a major growth driver in FY19. As the business moves ahead, a strong pipeline of sales opportunities across key markets of the UK, Australia, South Africa and New Zealand awaits Bravura Solutions Limited.


 Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodology: Price to Cash Flow Approach:

Price/Cash Flow Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, *NTM: Next Twelve Months

Stock Recommendation: The stock of the company generated negative returns of 17.86% and 16.09% over a period of 1 month and 3 months, respectively. In FY19, the company witnessed growth across key financial metrics, driven by its strong product suite. The period was also marked by a decent financial position with net cash of $194.8 million and cash conversion of 95%. Wealth Management segment reflected a remarkable growth trajectory on the back of strong client support for Sonata. During the year, EBITDA margin for the segment came in at 30.5%, up on prior corresponding year’s margin of 29.8%. Furthermore, the company’s funds administration segment is expected to benefit from a pipeline of opportunities and increased operational efficiencies over time. The acquisition of Midwinter will further enhance growth opportunities through the extension of its existing software solutions and is expected to be a good strategic fit for the business. Considering the performance in FY19 and future growth prospects, supported by extended product offerings, potential geographical expansion, and significant sales opportunities, we have valued the stock using relative valuation method, i.e., Price to Cash Flow multiple and arrived at a target price of $5.05 (double-digit growth (in %)). Hence, we recommend a “Buy” rating on the stock at the current market price of $3.870, down 1.023% on 04 October 2019.

 
 BVS Daily Technical Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.