Class Limited (ASX: CL1)

Decent first half of 2018: Class Ltd maintained its industry leading market growth and delivered a strong increase in revenue and profit. Revenue for first half of 2018 was up by 21% as compared to the same period in the last year which was driven by the addition of about 28000 new accounts since December 2016. EBITDA and net profit also increased by 23% and 19%, respectively, as compared to the first half of 2017. If this kind of growth continues, the Group will pay a fully franked interim dividend of 2.5 cents in March 2018.

A hugely successful sales and marketing campaign in December quarter delivered an encouraging outcome. It was the best December quarter ever as 76000 accounts were added which is well above any previous December result. As on 31 December 2017, Class had a total of 158,153 accounts (30 June 2017: 143,944) and it included 154,053 of Self-Managed Super Funds on the class super product. As on 6 February 2018, AMP had 9,500 funds on Class and it accounted for less than 5% of its recurring software license revenue. It recorded a growth rate of 19% for the first half of 2018. Excluding AMP, it continued to maintain its award-wining satisfaction levels and a retention rate of 99.5% for second half of 2017. This excellent customer retention underpins an annualised recurring revenue (ACMR) of $33.7 m for second half of 2017, which was up by 19% as compared to the same time in the last year. Despite some challenges, it is well positioned to continue to be the technology provider of choice for SMSF industry. It continues to improve its engagement with its partners and financial planners to enhance customer value and to provide the best wealth accounting platform possible.

In the past one month, the share price has increased by 4.27%, as at February 07, 2018. However, the stock plunged by 6.5% on February 08, 2018 despite the decent result as EBITDA margins are said to remain flat in FY18 owing to increased customer acquisition cost, deferring of revenue as part of Q2 campaign and migration of AMP funds during FY18. Based on the foregoing, we give a “Hold” recommendation on the stock at the current price of $2.74
 
 
Financial Performance Summary (Source: Company Reports)

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