Company Overview: Bravura Solutions Limited (ASX: BVS) offers software-based products and services in both funds administration and wealth management 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

BVS to Gain from Buyout Synergies & Decent Liquidity Position: Bravura Solutions Limited (ASX: BVS) is engaged in software solutions to clients operating in the wealth management and fund administration industries. The company’s flagship software product, Sonata, offers rich and proven wealth management functionality. 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. BVS had also announced that Aware Super has entered into a long-term contract for the implementation of an ecosystem of Bravura products, bolstered by Sonata Alta. BVS was selected by Aware Super to deliver the technology to power its mission-critical functions, which facilitates the administration of the retirement savings of its members.

Midwinter & FinoComp Acquisition (Source: Company Reports) 

Despite the volatility in the market and global uncertainty caused by the COVID-19 pandemic, BVS still remained 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. 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.

Key Trends (Source: Company Reports)

Looking ahead, the company expects FY21 NPAT to be in-line with the 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.

A Quick Look at FY20 Performance: 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). 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.

Revenue Highlights (Source: Company Reports)

Healthy Balance Sheet and Decent Liquidity: In FY20, the company had a current ratio of 2.21x, higher than the industry median of 1.79x, representing a decent liquidity position. Gross margin in FY20 stood at 92.2%, higher than the industry median of 80.8%. EBITDA margin and operating margin 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 9.4%. 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 the company for considerable long-term growth.

Profitability and Liquidity Profile (Source: Refinitiv, Thomson Reuters), Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 60.39% of the total shareholdings while the Top 4 constitutes the maximum holding. Mawer Investment Management Ltd. holds the maximum interest in the company at 10.31%, followed by Invesco Advisers, Inc. holding 8.99% of the shares, as also highlighted in the chart below: 

Data Source: Refinitiv, Thomson Reuters, Chart Created by Kalkine Group 

Key Risks: 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.

Outlook: 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 their clients’ needs, given the increased global demand for personalised digital experiences, self-service capabilities, and lower operating costs. BVS continue to invest and enhance its project pipeline to expand in current geographies along with future growth opportunities. The company has a strong sales pipeline with revenue visibility across its key markets. It will continue to focus on its core R&D strengths and make investments to enhance its market position in FY21 and FY22. BVS expects market demand across digital solutions, automation and microservices ecosystems, accelerated by the impact of COVID-19.

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

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last three months, the stock went up by ~6.1%. The stock made a 52-week low and high of $2.85 and $5.98, respectively, and is currently trading below the average of its 52-week trading range. On the technical analysis front, the stock has a support level of ~$2.884 and a resistance level of ~$4.018. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company might trade at a slight discount to its peer average, considering its stiff competition in the markets, regulatory concerns, and foreign currency fluctuation risks. We have taken peers like Hansen Technologies Ltd (ASX: HSN), Iress Ltd (ASX: IRE) to name a few. Considering the above factors, acquisition synergies, decent FY20 financial performance, increasing margins, and positive long-term outlook, we give a “Buy” recommendation on the stock at the current market price of $3.03, down by 1.624% on 29 January 2021.  

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

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