Company overview - OneVue Holdings Limited is engaged in providing outsourced superannuation administration, unit registry and responsible entity services, 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, responsibility entity services 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

Witnessing margin improvement and earnings momentum: For FY17, OneVue delivered a solid performance by reporting a 53% yoy (year on year) growth in the total revenue at $40.9 million, led by organic and acquisition growth. Further, strong revenue growth was underpinned by high levels of recurring revenue while Diversa acquisition delivered $10.0 million of revenue for the nine months (Trustee $5.6 million, Fund Services $3.5 million and Platform services $0.8 million) and Super Managers acquisition delivered $1.9 million.  Moreover, recurring revenue represents 91% of total revenues and comprises a mix of fees based on assets, transactions and member numbers. The company is witnessing client retention rates at historical high levels and 43% of revenues are not sensitive to market volatility. Notably, the EBITDA (underlying) increased by $5.7 million to $4.3 million against a loss of $1.2 million, while the EBITDA margin expanded by 1560bps to 11% from negative 4.5% in FY16. Importantly, EBITDA turnaround highlights earnings momentum and margin improvements. Accordingly, NPAT grew by $4.2 million to $0.2 million against a loss of $4 million, while it grew $5.4 million to $2.5 million excluding acquired amortisation. FY17 was a crucial year for the company as the revenue growth has translated to a significant profit uplift with positive and increasing margins, and positive cash flow through the year. Importantly, this has resulted in an uplift in earning per share of 2.29 cents to 0.08 cents.


FY17 P&L statement; (Source: Company Reports)

Growth in Fund Services: The company is a market leader in managed fund administration with FUA of $489 billion. During the year, Fund Services fund administration achieved a record growth in number of fund managers and 60% increase in items processed. Fund Services revenue increased by 65% over the prior year to $19.3 million and EBITDA surged 286% yoy to $2.6 million, led by 23% growth in Managed fund administration, and 212% growth in Super member administration. Additionally, operating expenses increased $5.5 million due to acquisitions and ongoing investment in growth. Importantly, EBITDA margin increased by 800 bps to 13.7% vs 5.7% in FY16, reflecting an emerging operating leverage with scale from increased revenues. For the segment, quality recurring revenue represents 92% of total revenues with increasing momentum from transitions and automation initiatives. Fund Services superannuation member administration also achieved record growth in number of funds with Funds Under Administration increasing by $0.8 billion to $1.96 billion and a 53,000 increase in members to 90,000.
 

Fund services segment results; (Source: Company Reports)

Platform Services received a boost from performance fees: Total revenue for Platform Services increased by 10.8% over the prior year to $17.2 million led by 337% growth in Performance fees to $1.2 million. Notably, Platform Services witnessed $1.2 billion gross inflows taking Funds Under Administration to a record $4.0 billion (doubled since IPO to reach $4.0 billion at 30 June 2017, a CAGR of 27%) and Investment Trends awards a Top 3 in Online client portal capability. However, positive impact of record gross inflows was offset by MAP member fee reduction and one-off loss of investment management client. Segment EBITDA still increased by 151% to $3.7 million with 1220bps improvement in EBITDA margin to 21.8% aided by decline in operating expenses with disciplined cost management. Quality recurring revenues represent 87% of total revenues for the segment.
 

Platform Services segment result; (Source: Company Reports)
 
Superannuation Trustee Services: OVH is a market leader in comprehensive trustee services for registered superannuation funds with FUT $9.4 billion at June 2017, driven by leverage to growing managed funds sector of retail superannuation. Revenue and EBITDA from Trustee services stood at $5.6 million and $2.2 million, respectively for nine months since acquisition of Diversa in October 2016. Moreover, revenue was driven by retail superannuation client growth while benefits of synergies are being realised. For the segment, quality recurring revenues represent 96% of total revenues.
 

Growth in FUT; (Source: Company Reports)
 
Strong H2FY17 Financial Performance: The group delivered a solid performance in H2FY17 by reporting a 57% growth in the total revenue at $22.4 million over the prior corresponding period (pcp) while posting EBITDA of $3.6 million against $0.9 million in H1FY17. For H2FY17, Fund services revenue increased to $10.8 million vs $8.5 million in H1FY17 with EBITDA growth of 174% and EBITDA margin growth from 8.9% to 17.5%. Platform services delivered revenue growth of 13% with 171% growth in EBITDA while Trustee services reported an EBITDA of $1.5 million for the second half.
 

H2FY17 vs H1FY17 Segment-wise financial summary; (Source: Company Reports)
 
Cash flows: The company had four consecutive quarters of positive cashflow and a full year result of $5 million, a $5.2 million increase. This was as a result of the EBITDA performance and benefits of working capital management (principally related to the Diversa acquisition). Operating cashflow after $1.7 million of acquisition and restructure costs stood at $3.3 million and the operating cashflow to EBITDA conversion ratio stood at 11%. The company’s gross cash balances stood at $26.6 million while $9 million of borrowings was acquired with the Diversa business giving a net cash position of $17.6 million.

Superannuation sector growth: With legislated compulsory superannuation savings set to continue, OVH expects the sector to grow by about 7% per annum through to 2025. OneVue has continuously exceeded the high growth of the superannuation sector and is confident in being able to continue to outperform sector growth in both the short and medium terms. OneVue’s superannuation growth strategy is focused on the fast-growing managed account and managed fund markets with the managed account market predicted to grow at a 35% compound annual growth rate while the $770 billion Platform market is poised to be the fastest growing segment of the personal investment market. Moreover, the launch of the FUND.eXchange service is positioning OneVue to drive structural change through the legacy platform market by creating greater fee transparency and providing lower cost more efficient access to managed funds.
 

Superannuation sector growth; (Source: Company Reports)
 
Outlook and FY18 growth strategies:  Over the past five years, OneVue has evolved from a Platform business to a diverse financial service business. The priority is to move across the monies in Fund Services fund administration that it has already won. There is $6 million of organic captive revenue to deliver on as per agreed transition plans bridging the 2018/19 financial years. Secondly, it has fund under administration to transition across from third party platforms to the OneVue platform and OVH has started to transition $300 million in FUA from recently won new clients. On Platform services, it anticipates transition of $300 million of FUA by December 2017 with greater volume from existing distributors and new distributors to increase market share in managed accounts and managed funds. Further, growth in Trustee Services is expected from managed accounts and new clients. Importantly, the three complementary businesses are expected to create enhanced growth opportunities through cross selling means using the OneVue ecosystem and accelerated growth via strategically aligned and compelling acquisitions.
 
Stock Performance: The stock has declined 10.9% in the last three months while it is down 14.3% in the past one year owing to volatility. With the improved result, the stock has now moved up 11.7% in last five days (as at August 28, 2017). The group has been delivering a better performance with revenues growing at a CAGR of 69% since FY13 through to FY17. Further, OVH is pursing both organic and inorganic opportunities while sustaining the existing revenue and earnings with 91% of recurring revenues. We give a “Buy” recommendation on the stock at the current price of $0.595
 

OVH Daily Chart (Source: Thomson Reuters)
 

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