Company Overview: Bravura Solutions Limited (ASX: BVS) is engaged in offering software-based products and services in the wealth management and funds administration industries. The company’s operations are spread across 8 countries, which include Australia, New Zealand, Asia, Africa, Europe, the UK, etc. The company’s offerings are spread across two operating segments, namely, Wealth Management and Funds Administration. The company supports its clients, with greater than 1,400 employees in 18 offices across Australia, New Zealand, United Kingdom, Europe, Africa, and Asia.

BVS Details

Acquisition Spree and Robust Product Adoption Aid BVS: Bravura Solutions Limited (ASX: BVS) is engaged in software solutions to clients operating in the wealth management and fund administration industries. Sonata is BVS Solutions Limited’s flagship software product, which provides rich and proven wealth management functionality. Despite the volatility in the market and global uncertainty caused by the COVID-19 pandemic, BVS remains on track with robust operating and financial performance across its business. It depicts that since the company’s IPO in November 2016, BVS has enjoyed four consistent years of encouraging full-year results. The company also implemented strategic initiatives to advance towards the long-term strategic goals to grow its overall addressable market.

In FY20, the company strengthened its product suite with Midwinter Financial Services and FinoComp acquisition, thereby enhancing its technology capability and providing greater coverage of the financial services value chain. Both the companies aid BVS to offer robust sales pipelines, with effective cross-sell prospects and enhance its overall product suite. In October this year, Bravura Solutions Limited also informed the market that it has acquired Delta Financial Systems, for a total purchase consideration of ~A$41.5 million. The acquisition is in-line with the company’s strategy to broaden its product suite. Further, the buyout also provides an opportunity to offer BVS’ other products to Delta’s client base.

Over the period of FY15-FY20, revenues and EBITDA grew at a CAGR of 12.51% and 26.99%, respectively, depicting a continuous upward movement. On a segment basis, BVS has also witnessed a continuous upward movement in the Wealth Management revenue, backed by continuous solid growth from Sonata.

Key Trends (Source: Company Reports)

Recently, the company announced that it has entered into a long-term contract with Aware Super for the execution of an ecosystem of Bravura products, bolstered by Sonata Alta. The company is well-positioned to capitalise on growth trajectory and drive sales opportunities from new clients and significant project activity from existing clients, given its robust balance sheet position, an extended and complementary product suite and increased scale benefits. Going forward, the company expects FY21 NPAT to be in-line with FY20 figure of $40.1 million. While the new sales pipeline remains strong due to the wider impact of COVID-19, the company expects FY21 NPAT to be in-line with FY20.

Revenues and NPAT Increased on Y-o-Y basis in FY20: The company continued to deliver an increase in revenue along with the expansion of its operating leverage. Revenues for FY20 came in at $274.2 million, indicating a growth of 6% over FY19. Group EBITDA and NPAT grew by 19% and 22%, and came in at $57.8 million and $40.1 million, respectively. During the period, the company witnessed revenue growth across both its Wealth Management (up 2% on pcp) and Funds Administration business units (up 16% on pcp). The company’s clients have greater than $4 trillion of assets under administration on Bravura technology. BVS’ steady financial performance in such difficult times, depicts the strength of its business and the value of its product suite. Notably, the company invested more than $210 million in its flagship product Sonata, which positions it as a leading product in key regions, with robust shareholder’s return. In FY20, the company invested a further $36 million in its product suite to enhance digital functionality across its offerings.

FY20 EBITDA, NPAT & Revenues Highlights (Source: Company Reports)

Key Geographic Contribution: Trustees Executors, a leading New Zealand outsourcer expanded its long-standing collaboration with Bravura in APAC. The partnership aims to aid the outsourcer to upgrade to BVS’s digital and Managed Cloud Services solutions. Another key milestone in FY20, was to offer the company’s Australian superannuation clients the capability to automate the bulk processing of quick-release requests due to COVID-19 led legislative modifications. In EMEA region, the company’s flagship product continued to drive growth through project work from existing clients. Fidelity also completed their SIPP migration onto Sonata. This strengthens Sonata as a market-leading, active, and responsive business solution.

Healthy Balance Sheet and Decent Liquidity: In FY20, the company had a current ratio of 2.21x, higher than the industry median of 1.96x, representing a decent liquidity position. Gross margins in FY20 stood at 92.2%, higher than the industry median of 80.8%. EBITDA Margins and Operating margins came in at 25.2% and 18.1%, respectively, in FY20, higher than the industry median of 23.8% and 14.9%, respectively. ROE for the period came in at 13.3%, higher than the industry median of 11.6%. As on 30 June 2020, the company had a consistent net cash position of $99.1 million. BVS also declared a final unfranked dividend of 5.5 cents per share for FY20, along with an interim dividend of 5.5 cents per share declared earlier in the year. This depicts the full-year dividend to be 11.0 cents per share. At the end of the period, lease liability came in at $42.3 million. Total operating cash flow for FY20 stood at $19.4 million. The company’s healthy balance sheet and skilled management team along with its long-term nature of client relationships place it for considerable long-term growth.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Top 10 Shareholders:  The top 10 shareholders have been highlighted in the table, which together form around 54.54% of the total shareholding. Mawer Investment Management Ltd. holds the maximum interest in the company at 8.49%, followed by Invesco Advisers, Inc. holding 7.97% of the shares.

Top Ten Shareholders (Source: Refinitiv, Thomson Reuters)

Risk Analysis: BVS continues to acquire a large number of companies, which adds to integration risks. It can also adversely impact its balance sheet in the form of an elevated level of goodwill and intangible assets. Further, the second wave of UK lockdown due to rising COVID-19 led uncertainties and delaying Brexit negotiations increases ambiguity and is likely to slow the progress of pipeline opportunities in the UK. Moreover, stiff competition in the markets where BVS operates and regulatory concerns may dampen financial performance. Further, foreign currency fluctuation risks and government restrictions add to the woes.

What to Expect: The company remains well placed to sustain its upward growth trajectory, buoyed by its latest Sonata Alta proposition and recent acquisitions. Although the company has witnessed a lengthy sales cycle due to COVID-19, it remains strong with a robust long-term sales pipeline, including significant opportunities to attract new clients across key markets and increase technology spend amongst existing clients. Further, the company is likely to aid its clients’ needs, given the increased global demand for personalised digital experiences, self-service capabilities, and lower operating costs. BVS continues to invest and enhance its project pipeline to expand in current geographies along with future growth opportunities.

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The buyout spree of Midwinter, FinoComp and Delta Financial Systems 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. The stock of the company has corrected by ~6.7% in the past three months but went up ~8.5% in the past one month. Currently, the stock is trading below the average of its 52-weeks’ trading range of $2.85-$5.98 with a market capitalisation of ~$825.53 Mn and PE multiple of ~20.2x. On a technical analysis front, the stock has a support level of ~$2.826 and a resistance level of ~$3.786. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as Iress Ltd (ASX: IRE), Hansen Technologies Ltd (ASX: HSN), and TechnologyOne Ltd (ASX: TNE). Considering the above factors, decent financial performance, and positive long-term outlook, we recommend a “Buy” rating on the stock at the current market price of $3.29, down 1.498% on 27 November 2020. 

BVS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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