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

Contract Win & Synergies from Buyouts 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 the core of BVS’s product ecosystem and it remains on track to continuously invest in Sonata, to support the client’s demand and extends the product’s market-leading position. Strong growth, increasing scale and greater efficiency are driving increased operating leverage. Subsequent to the substantial product investment and the growth of deep market knowledge and expertise, the company is well placed to capitalise on the significant market opportunity. Notably, BVS has a robust sales pipeline across its key markets and its geographic regions, which aid the company to drive sales opportunities from new clients and significant project activity from existing clients. BVS currently enjoys success, particularly in Europe. While COVID-19 is making this more difficult, the company remains on track to drive potential opportunities to move into new geographies through acquisition, thereby seeking to expand into these regions.

In FY20, revenue of the company went up to $274.2 million from $257.7 million in FY19 and EBITDA witnessed an increase from $48.6 million in FY19 to $57.8 million in FY20. Recurring revenue for the period increased 7% year over year and accounted for ~77% of total revenue. NPAT for the period stood at $40.1 million, up 22% on the previous year’s NPAT of $32.8 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 the commencement of production for a number of clients along with additional projects for new and existing clients.

The company’s Wealth Management segment reported FY20 revenues at $180.4 million, up 2% year over year, owing to higher revenue contribution by Sonata from complex projects being delivered for new clients across key geographical markets. Revenue for the Funds Administration segment in FY20 amounted to $93.8 million, up 16% year over year, 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.

Revenues and EBITDA grew at a CAGR of 12.51% and 26.99%, respectively, over the period of FY15-FY20, depicting a continuous upward movement.

Acquisition Spree & Contract Wins: The company aims to expand its addressable market via the strategic buyout of Midwinter and FinoComp. Midwinter is well-positioned to take advantage of continued change in the Australian financial advice industry along with other geographies in which BVS presently operates. FinoComp has several sales prospects with new and existing UK clients. Both the buyouts are delivering robust sales pipelines and will boost the top-line of BVS in the long run. In October 2020, the company acquired Delta Financial Systems, which has broadened BVS’s product offering in the UK complex pensions administration market.

Recently, the company announced that Aware Super has entered into a long-term contract for the implementation of an ecosystem of Bravura products, bolstered by Sonata Alta. Aware Super has chosen BVS to deliver the technology to power its mission-critical operations, which aids the administration of the retirement savings of its members.

Liquidity Position: BVS is in a robust financial position with a cash balance of $99.1 million as at 30 June 2020. The decent financial performance enabled the Board to pay a final dividend of 5.5 cents per share bringing the full-year payout ratio to 67% of FY20 NPAT. The strong financial position added to the company’s capacity to grab organic and acquisitive growth opportunities. Lease liability at the end of the period stood at $42.3 million. Total operating cash flow for FY20 was reported at $19.4 million.

Cash Highlights (Source: Company Reports)

Key Ratio Metrics: In FY20, the company had a gross margin of 92.2%, higher than the industry median of 81.1%. EBITDA margin for the same time span stood at 25.2% as compared to 20% in FY19. Net margin of the company stood at 14.7% in FY20, higher than the year-ago figure of 12.7%. Current Ratio Stood at 2.21x in FY20 Vs 1.96x of industry median.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Top 10 Shareholders:  The top 10 shareholders have been highlighted in the table, which together forms around 52.57% 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)

Key Risks: The company operates in a highly regulated environment with increased compliance obligations post Royal Commission. This exposed the company to significant compliance burden and material reputational risks for regulatory transgressions. Additionally, the economic slowdown in China is likely to impact revenues from Asia. Also, stiff competition, foreign currency fluctuation risks along with the potential impact of coronavirus pose risks on the operational front.

Future Expectation: The company remains on track to maintain its upward growth trajectory, backed by its new Sonata Alta proposition and recent acquisitions. Owing to its strong long-term sales pipeline, including significant opportunities to attract new clients across key markets and increase technology spend among existing clients, the company remains positive to come out stronger post COVID-19 period. With increased global demand for personalised digital experiences, self-service capabilities and lower operating costs, Bravura’s market-leading solutions are well placed to meet these client needs. 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. The company’s product suite is expected to drive further growth supported by continued long-term demand from the client base.

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E 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 stock of the company generated a negative return of 25.9% in the past six months and is currently trading below the average of its 52-week trading range of $2.85 - $5.98. The company witnessed growth across key financial metrics, driven by its strong product suite. Wealth Management segment reflected a remarkable growth trajectory on the back of strong client support for Sonata. 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. On a technical analysis front, the stock has a support level of ~$2.856 and a resistance level of ~$3.738. We have valued the stock using the price to earnings 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 Hansen Technologies Ltd (ASX: HSN), Iress Ltd (ASX: IRE) to name a few. Considering the above factors, decent financial performance, positive long-term outlook, and valuation, we recommend a “Buy” rating on the stock at the current market price of $3.17, down by 2.761% on 11 December 2020.

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

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