Smartgroup Corporation Ltd

SIQ Details
 
Focusing on growth from acquisitions: Smartgroup Corporation Ltd (ASX: SIQ) has inked an agreement to acquire the assets of RACV Salary Solutions for $27 million plus $7 million retained in escrow, payable 12 months from the date of completion. RACV Salary Solutions, based in Adelaide, is a national provider of salary packaging administration and novated leasing services. RACV Salary Solutions recorded revenue of $16.6 million and EBITDA of $5.0 million in FY 2017. The transaction is expected to complete by November 01, 2017. Further, SIQ has also an agreement in place for acquiring 100% of the shares in ABM Pty Ltd (Aspire) for $5.6 million net of cash acquired and $0.1 million cash retained in escrow to December 31, 2017 and $0.5 million cash retained in escrow to June 30, 2018. Aspire has been said to record revenue of $3.3 million and EBITDA of $1.2 million in FY 2017.
 

Outsourced Salary Packaging and Leasing Offerings (Source: Company Reports)
 
Together, the acquisitions are expected to extend Smartgroup’s salary packaging and novated leasing presence in all segments of the market. Further, these are expected to contribute to c.$1.2 million of CY 2017 EBITDA for the remaining period, and c.$12.0 million of CY 2018 EBITDA with full synergy run rate in H2 2018, and CY 2018 EPS accretion of c.12%. The shares of SIQ rallied over 33.9% in the last three months while being up 27.8% in the past one year (as of September 14, 2017). Overall, SIQ’s earnings are expected to be driven by organic growth in view of the opportunities in the markets via new tenders and better penetration of the existing workforce of employer clients. Given the above, we maintain a “Hold” rating on the stock at the current price of $ 9.29
 

SIQ Daily Chart (Source: Thomson Reuters) 

Bravura Solutions Ltd

BVS Details
 
FY17 result above prospectus forecast: Bravura Solutions Ltd (ASX: BVS), a provider of enterprise software for wealth management, has reported a healthy FY17 result with revenue growth of 16.8% over prior corresponding period (pcp) on a constant currency basis and 3.9% on an actual currency basis to $191.9 million, driven by significant new client wins over the year, and growth in revenue from existing clients. The total number of Sonata clients at 30 June 2017 was 20, following three new client wins in the first half and one in the second half of the year. Group pro forma EBITDA increased 128.4% to $32.6 million versus pcp on constant currency basis, and 61.4% on an actual currency basis. Notably, group pro forma EBITDA margin increased to 17.0% versus 10.9% in the pcp. In turn, group pro forma NPAT was up 227.5% to $22.3 million on an actual currency basis. Overall, the result was above its IPO prospectus forecast. The group expects to witness further growth from expansion in sales of Sonata and sales of Funds Administration SaaS. New clients in the UK and South Africa are also expected to benefit.
 

Pro forma financials; (Source: Company reports)
 
On the other hand, the stock has moved up 12.3% in the last six months while it is up 23.4% year to date (as of September 14, 2017) and is peaking towards its 52-week high level.We believe the stock is “Expensive” at the current price of $ 1.70
 

BVS Daily Chart (Source: Thomson Reuters) 

Iress Ltd

IRE Details
 
Targeting new markets: Iress Ltd (ASX: IRE) had reported a drop in its half year 2017 NPAT by about 10% to $29.53 million while revenue from ordinary activities surged 9% over prior corresponding period. The group maintained their interim dividend as 16 cents. On the other hand, the group had reported for positive contribution from both Financial Synergy and INET acquired in 2016. IRE has now integrated the digital advice product, and this will bring the capabilities of Acurity’s online portal and XPLAN together, which will generate strong interest and thus new revenue in H2. Efforts like these are aiding IRE to leverage multiple opportunities and exploring potential for new markets. However, increasing operating costs for financial services segment and contracting margins, need to be looked at.
 
Recently, Iress changed its leadership team to strengthen focus and delivery, drive continued growth and in key markets. With the current changes, Glenn Wilson (Managing Director - Canada), will return to the United Kingdom to lead Wealth & Trading, to be based in London, and to support the key growth area. Accordingly, Mike Lynds (currently EVP, Business Development in Canada) will become Managing Director of Canada, and will report to Glenn Wilson. On the other hand, Aaron Knowles (Group Executive - Product) will relocate to the United Kingdom from Australia at the end of 2017 to provide additional on-the-ground support and experience with existing teams. IRE is also simplifying its structure through initiatives such as removal of few positions in financial markets and wealth management to maintain a clear focus on scaling its products globally.
 
The stock has fallen 8.2% in the past four weeks at the back of mixed result, while it has been up 4.7% in the past six months (as of September 14, 2017). The stock seems to be trading at a high level given the price to earnings scenario and the financial result. We maintain an “Expensive” recommendation on the stock at the current market price of $ 11.92
 

IRE Daily Chart (Source: Thomson Reuters) 

PSC Insurance Group Ltd

PSI Details
 
Robust financial performance: PSC Insurance Group Ltd (ASX: PSI) has witnessed a rally of 86.8% since listing (as at September 14, 2017) and had reported for a stellar performance. The group witnessed a 25% year on year (yoy) growth in FY17 statutory revenue at $84.5m while the underlying revenue was up 20% on the pcp to $81.3 million. Underlyings earnings before interest, tax, depreciation and amortisation (EBITDA) increased 34.4% to $28.5 million and underlying EBITDA margin was up from 31.4% to 35.0% on the pcp. Accordingly, statutory net profit after tax attributable to members increased to $19.7 million and underlying net profit after tax and before amortisation (NPATA) was up 28% to $18.4 million. PSI’s organic EBITDA growth in the Australian operations was $3.9 million and the group has benefitted from its increasing scale, improved revenue and margin. Moreover, the broking operations, the underwriting agency and network businesses have performed strongly. 
 
Recently, PSI has acquired Insurance Marketing Group of Australia Pty Ltd (IMGA) and Medisure Indemnity Australia Pty Ltd (MIA). IMGA is a Brisbane based, national insurance broking business, specialising in services to the healthcare industry. IMGA has a history of developing new products for the evolving needs of the healthcare industry and healthcare professionals. Key terms of the transaction included purchase price at $5.7 million, payable 80% upfront and the remaining 20% due within 15 months. The final 20% is adjustable, dependent on the revenue after 12 months. MIA is a related business of IMGA, specialising in insurance products to the healthcare industry. Key terms of the transaction included purchase Price at $2.9 million, payable 80% upfront and the remaining 20% due within 15 months. The group expects revenue to be approximately $3.7 million from the acquisitions as the businesses have a consistent record of sound profitability.
 
The stock has surged 42.1% in the past six months while it is up 35% in the last one year (as on September 14, 2017) and is trading at all time high levels which seem to have factored in the recent positive developments. We maintain an “Expensive” recommendation on the stock at the current price of $ 2.70
 

PSI Daily Chart (Source: Thomson Reuters)

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