Bravura Solutions Limited

BVS Details

Shareholder’s Interest: Bravura Solutions Limited (ASX: BVS) is engaged in offering software products and services to clients operating in the wealth management and funds administration industries. In a recent update, the company informed the market that Invesco Australia Limited, a substantial holder of the BVS, has decreased its voting power from 10.596% to 9536%.

Annual General Meeting Update:

• In FY21, the company recorded revenue of $243.0 million, down by 11% year over year, owing to lower revenues in the UK led by COVID-19 uncertainty in the market. Nevertheless, BVS’ contracted recurring revenue went up by 15% on pcp basis in FY21.
• In FY21, the company reported an EBITDA of $49.3 million, down from $57.8 million reported in FY20. Reported NPAT came in at $34.6 million in FY21, reflecting a fall of 14% on pcp.
• The company ended the period with a robust net cash position of $73.6 million and declared a final unfranked dividend of 6.0 cents per share in FY21, depicting an increase of 0.5 cents per share on the final FY20 dividend.
• The company’s Chief Executive Officer ‘Mr. Tony Klim” stepped down from his role after thirteen years of service, and was succeeded by Mr. Nick Parsons, which became effective on 3 September 2021.
• In FY21, the company spend $50.4 million in R&D to focus on automation, digital self-service modules and other microservices, along with the recent acquisition of UK-based Delta Financial Systems.

Geographical Representation (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the prevailing global uncertainties related to COVID-19 and other geopolitical tensions. The company is exposed to stiff rivalry from competitors developing similar product lines and services. In addition, forex headwinds, integration risk, and the risk of losing key customers add to the woes.

Outlook: The company is well placed to accomplish growth prospects in the days ahead by meeting the bolstering demand for SaaS, microservices, cloud, and subscription-based services. The company is expected to emerge stronger, owing to strategic initiatives and investment in R&D to develop componentisation of its products during FY22.

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

Source: 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: The stock of BVS is trading below its 52-weeks’ low-high average of $2.42- $3.980, respectively. The stock of BVS has been corrected by ~23.2% in the past six months. The stock has been valued using the P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the tepid FY21 results, foreign exchange risk, integration risk, COVID-19 led uncertainties, etc. For the purpose of valuation, peers such as Hansen Technologies Ltd (ASX: HSN), Iress Ltd (ASX: IRE), Reckon Ltd (ASX: RKN), and others have been considered. Considering the expected upside in valuation, synergies from the latest acquisition, high ROE, decent outlook, current trading levels, current market volatility due to the new COVID-19 variant (Omicron) and, other key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $2.48 as on 29 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

BVS Daily Technical Chart, Data Source: REFINITIV 

Integrated Research Limited

IRI Details

Key Updates from AGM: Integrated Research Limited (ASX: IRI) is a provider of varied software solutions such as collecting, and storing data, performance tracking, event automation, helpdesk applications, event automation, resource management, and job scheduling.

• In FY21, the company reported a profit after tax of $7.9 million and revenue of $78.5 million, depicting a decline of 67% and 29%, respectively, on a year-over-year basis.
• Cash receipts from customers during the period came in at $78.8 million, depicting a decline of 18% on a year-over-year basis.
• The company remains on track to protect existing customer environments, cross-sell new hybrid cloud solutions, enhance MS Teams, Zoom & Webex products and expand into new SaaS platforms.
• IRI maintained a net positive operating cash flow position of ~$21.10 million during the year. IRI exited FY21 with a net cash balance of ~$5.5 million, up from $4.7 million reported at the end of FY20.
• Notably, FY22 YTD Total Contract Value (TCV) was up on a year over year basis, owing to new products, 'hybrid' traction, along with ongoing investment in product innovation to capitalise on new market opportunities.
• Reported revenue and NPAT in FY22 YTD was almost in line on a year-over-year basis, due to change in revenue mix as the company expanded into new SaaS platforms.

Total Contract Value Highlight; (Analysis by Kalkine Group)

Risk Analysis:

• The company’s financial performance might get impacted by deal deferrals and caution in buying behaviour.
• The company is exposed to the prevailing global uncertainties related to COVID-19 and other geopolitical tensions.
• The company operates in a highly competitive environment and is exposed to foreign currency fluctuation risks.

Outlook: The company remains on track to achieve its FY22 priorities to win new customers, launch new products and grow its SaaS business. The requirement of the company’s cloud-based solutions to enterprise customers has become more relevant. It expects the structural changes in market dynamics to positively aid its operational and financial fundamentals. The company remains on track to invest higher in R&D to accelerate innovation and expand its value proposition for customers globally.

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

Source: 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: On 31 October 2021, Mr. Garry Donald Dinnie, ceased to be a Director in IRI. The stock of IRI gave a negative return of ~46.10% in the past six months. The stock is currently trading close to its 52-week low level of $1.135. The stock has been valued using the Price to Earnings Per Share multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers, considering its decline in top and bottom line in FY21 result, COVID-19 disruptions, forex impact, etc. For this purpose of valuation, a few peers like PayGroup Limited (ASX: PYG), Nuix Limited (ASX: NXL), Iress Limited (ASX: IRE) and others have been considered. Considering the current trading levels, decent liquidity position, new product launches, contract wins, robust customer additions, indicative upside in the valuation, and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.175, as of 29 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

IRI Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined:

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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