Bravura Solutions Limited

BVS Details

Key Updates for Investors Consideration: Bravura Solutions Limited (ASX: BVS) provides software products and services to clients operating in the wealth management and funds administration industries. Recently, UBS Group AG and its related bodies corporate has become a substantial holder in the company with a voting power of 5.01%.

• On 22 September 2021, the company notified a price of $3.02 per share, which would be used by the participants of the Dividend Reinvestment Plan (DRP) for the final dividend of FY21.
• The company’s Chief Executive Officer ‘Mr. Tony Klim” would step down from his role after thirteen years of service and will be succeeded by Mr. Nick Parsons, which became effective on 3 September 2021.

Market Scenario:

• The total addressable market (TAM) in the UK and Australia is ~GBP1.2 billion per annum and ~$1.0 billion per annum of client IT spend, respectively.
• The company possesses a single-digit market share in both regions (Australia and UK), and its long-term growth is likely to be generated by clients’ need to address speed to market for new products, the growing importance of a seamless digital experience as well as ongoing changes in financial services regulation and pressure to increase operational efficiency.

FY21 Financial Highlights:

• Fall in Revenue and NPAT: For the year ended 30 June 2021, the company recorded revenue and reported NPAT of $243.0 million and $34.6 million, reflecting a fall of 11% and 14%, respectively. The fall in the topline was mainly led by lower revenues in the UK caused by significant COVID-19 uncertainty in the market, resulting in lower project work.
• Rising Cashflow to EBITDA Conversion: BVS recorded operating cash flow (excluding taxes paid) of $52.7 million, indicating operating cashflow to EBITDA conversion of 105% against 56% in FY20.

Revenue & NPAT (Source: Analysis by Kalkine Group)

Key Risks:

• Increased Competition: The company operates in a very competitive environment, and the rising share of peers could impact its financial health.
• Forex Headwinds: BVS operates in multiple geographies, which leaves the business exposed to a risk arising from adverse movement in foreign currency.

Outlook:

• The company’s strategy revolves around increasing componentisation via the development of additional microservices, further cloud enablement, and increasing digital and automation capabilities.
• BVS is optimistic about its growth, which will be benefited from the strengthening industry structural demand for SaaS, microservices, cloud and subscription-based services.
• For FY22, the company anticipates NPAT growth to be in the mid-teens relative to FY21 adjusted NPAT of $32.3 million.
• The company has scheduled to conduct the 2021 Annual General Meeting on 24 November 2021.
  

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: During FY21, BVS acquired Delta Financial Systems (Delta) for $42 million, and the company continues to evaluate a pipeline of additional acquisitive and organic growth opportunities looking forward. As on 30 June 2021, the company had a cash balance of $73.6 million against $99.08 million as on 30 June 2020. The stock of BVS is trading below its 52-week low-high average of $2.440 - $3.980, respectively. The stock of BVS has been corrected by ~21.44% and ~11.04% in the past three and six months, respectively. 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’ average P/E multiple, considering the low current ratio, high debt to equity ratio, and foreign exchange risk. 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 gross margin and ROE, decent outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $2.740 as on 05 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

BVS 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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