Company Overview: OneVue Holdings Limited is engaged in providing outsourced superannuation administration, unit registry, and end-to-end superannuation services, including the provision of investment and portfolio administration, tax and reporting services. The Company's segments include Fund Services, Platform Services and Corporate. The Fund Services segment provides outsourced unit registry and installed software to a range of investment managers, custodians, trustees and superannuation administration. Its Platform Services segment offers services, including investment administration, tax and reporting services for both superannuation and other investments, a retail superannuation fund, self-managed superannuation fund (SMSF) compliance and administration services and investment management. It manages asset classes, including listed shares, term deposits, warrants, as well as personal assets and investments, including collectibles.

OVH Details
Decent Outlook: OneVue Holdings Limited (ASX: OVH) happens to be a wholesale service provider to the wealth management industry. As on October 22, 2019, the market capitalisation of the company stood at ~$95 million. Looking at the historical performance over FY15 to FY19, total revenue of the company has grown with a compound annual growth rate (CAGR) of 18.2% and its EBITDA has grown at a CAGR of 61.3% over the said period. Amidst the disruptive environment, the company witnessed a decent performance in terms of top-line, EBITDA along with healthy cash reserve at the end of FY19. The company’s key personnel stated that FY19 was marked by completion of the business’ simplification, freeing management in order to focus on high-growth core sectors of Fund Services and Platform Services. For the first time, Fund Services accounted more than 60% of the company’s total revenues in FY19. There are clear growth runways in both Fund Services and Platform Services with robust tailwinds, and the company has identified the greatest margin improvement opportunity is to transition clients, which have been won already.

In 2019, the company witnessed revenue growth of more than 35% and EBITDA growth of ~60% over the prior year. Further, the company declared a net gain of ~$8.6 Mn from the divestment of discontinued operations. However, there would be a significant rise of 200% in a net cash position to ~$40 million when $31 million outstanding will be paid from the sale of Diversa Trustee, which is due by November 2019 end. The company’s strategy revolves around (1) high growth margin uplift with the help of automation and integration, innovation and scale, and (2) focuses on building brand awareness.

Moving forward, it can be said that simplification of business and focus towards high growth core sectors might act as tailwinds for long-term growth. Also, capabilities to build cash levels and stability of the balance sheet can help the company in achieving long-term growth objectives. 


Revenue Proportion by Business (Source: Company Reports)

Top 10 Shareholders: The following table provides a broader overview of the top 10 shareholders in OneVue Holdings Limited:


Top 10 Shareholders (Source: Thomson Reuters)

Key Metrics: Gross margin of OneVue Holdings Limited stood at 83.4% in FY19, which is higher than the industry median of 67.2%. During the same period, the company’s EBITDA margin stood at 10%. Coming to the liquidity levels, the company has a current ratio of 2.70x in FY19, which is higher than the previous year’s figure of 1.05x and, therefore, it can be said that OVH is having decent capabilities to meet its short-term obligations. Additionally, respectable liquidity levels reflect that the company could make deployments towards the strategic business activities, which can act as long-term growth catalysts. The company’s Debt/Equity ratio has been declining over the past few years and, therefore, it can be said that the company’s balance sheet is stabilised. Generally, lower debt on the balance sheet reflects that the company can focus on its long-term growth objectives. 

 

Key Metrics (Source: Thomson Reuters)

Overview of FY19 Results: The company posted revenues amounting to A$49.6 million in FY19, which reflects a rise of 35% on a YoY basis. Robust organic growth of $6.5 million and the acquisitions contributing $6.3 million were the main drivers of the growth. The revenues were supported by the quality of recurring revenue, which represented 93% of total revenues. The company’s adjusted NPATA amounted to $1.5 million in FY19, reflecting an increase of 34% on a YoY basis. The following picture provides the financial summary for FY19:


FY19 Key Numbers (Source: Company Reports)

The company’s operating expenses from continuing operations witnessed a rise of 33%, which reflects the acquisitions and growth-related costs. Its EBITDA from continuing operations amounted to $4.5 million, which implies an improvement of 59% as compared to the previous year, reflecting benefits of scale, efficiencies, and ongoing cost disciplines. 

Stable Balance Sheet Might Support OVH’s Future Prospects: The company’s cash and cash equivalents witnessed a fall and stood at $10.6 million, primarily because of cash deployed towards acquisitions and associated acquisition and restructuring costs and repayment of borrowings. The company received $12 million cash as a result of the sale of Trustee business. It was further added that $5.4 million of cash was divested with the business along with related borrowings. The company mentioned that the net cash figure of $10.2 million will be increased to more than $40 million on receipt of final Trustee sale proceeds. The below image has been extracted from the company’s FY19 results presentation:


Balance Sheet (Source: Company Reports)

Resignation of Director: OneVue Holdings Limited has made an announcement that Mr Andrew Macpherson has resigned from the designation of Non-Executive Director following the sale of OneVue’s Trustee Services business. This sale has been made to Sargon Capital Pty Ltd. OneVue Chair named Mr Ron Dewhurst stated that Andrew was the highly valued member of the Board and OVH has benefited from the experience and expertise he possesses.

OVH Possesses Decent Revenue-Generation Capabilities: The company’s cash receipts witnessed a CAGR growth of 21.58% between the time span of FY15- FY19 and, therefore, it can be said that the company is possessing decent capabilities to build its cash levels. During the same time span, the company’s total revenues encountered a CAGR growth of 18.21% and, thus, it looks like the company has respectable capabilities to garner revenues. OVH’s capabilities to build cash levels and garner revenues might support its long-term growth prospects and could attract the attention of the market players moving forward. Between FY15- FY19, the company’s gross profit has witnessed a CAGR growth of 17.61%.

There has been a significant improvement in the company’s cash from operating activities between FY15- FY19 and, therefore, it can be said that its operational capabilities have been improved, which might help in the overall growth moving forward.

What to Expect from OVH Moving Forward: The company has a decent outlook on the back of the robust pipeline of potential new clients, and strong tailwinds in both businesses. The company plans to execute well on its 4 pillars of strategy, which includes automation and integration, innovation, scale as well as increased brand awareness. It was added that after simplification of the business model and sharpening of its focus towards fund services and platform services businesses, the company’s Board and Management is of the view that OVH needs to convert the streamlined operating business to strong growth, organically as well as with the help of acquisitions.

Notably, upon receipt of $31 million in the final proceeds from sale of Trustee business, the company’s net cash position would be exceeding $40 million and they would look at the smart capital management which includes paying 2.19 cents per share special fully franked dividend, actively going after other opportunities (organic and acquisitive) and considering buy-back event. The company added that favourable structural environment helped by the government mandated superannuation is anticipated to support a positive outlook for the year ahead, and beyond.


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodologies:
Method 1: EV/Sales based Valuation

EV/Sales based Valuation (Source: Thomson Reuters)

Method 2: EV/EBITDA Multiple Approach

EV/EBITDA Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: The company’s stock has witnessed a fall of 6.58% in the span of previous one month, while in the time frame of past three months, the stock has encountered a fall of 10.13%. As per ASX, the stock is currently trading towards the lower band of its 52-week trading range of $0.350 - $0.645. The company’s client base consists of banks, trustees and global custodians with high levels of infrastructure and robust security protocols. Therefore, the company has already invested in scalable technology and security in order to accommodate additional clients and transactions. Additionally, there are expectations that decent liquidity levels and improvement in the operational capabilities might support the overall company to gain the attention of the market participants. Based on the foregoing, we have valued the stock using two relative valuation methods, i.e., EV/Sales multiple and EV/EBITDA multiple and arrived at a target price upside of lower double-digit growth (in % term). Hence in view of aforesaid facts, valuation, and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.365, up 2.817% on 22 October 2019.
 

 
OVH Daily Technical Chart (Source: Thomson Reuters)

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