£1.5m Revolution conversion with 77% uplift

StatPro Group 1 July 2019 Update
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StatPro Group

£1.5m Revolution conversion with 77% uplift

Contract win

Software & comp services

1 July 2019

Price

133.50p

Market cap

£88m

Net debt (£m) at 31 December 2018

24.6

Shares in issue

65.8m

Free float

82%

Code

SOG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.9

19.6

(22.1)

Rel (local)

0.0

16.5

(19.6)

52-week high/low

172.00p

105.00p

Business description

StatPro Group provides cloud-based portfolio analytics solutions to the global investment community.

Next events

Interim results

Late July 2019

Analysts

Richard Jeans

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5729

StatPro Group is a research client of Edison Investment Research Limited

Positive newsflow continues, with StatPro announcing a significant £1.5m conversion from its legacy Seven suite to its modern Revolution cloud platform. This follows the recent news of a partnership with JP Morgan’s Data and Analytics business and the acquisition of an ESG research and index business. The deal is significant since it is a large contract with a key client, has an attractive 77% conversion premium and signals that the group is moving towards the end stages of conversions of its legacy Seven contracts. In our view, the shares continue to look undervalued, given the group’s c £56m recurring revenue book and the attractive rating (c 14x FY20e), especially in light of the active M&A backdrop in the financial software sector.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/17

49.3

3.3

5.8

2.9

23.0

2.2

12/18

54.8

5.0

7.3

2.9

18.3

2.2

12/19e

58.4

6.2

8.0

2.9

16.6

2.2

12/20e

61.8

7.6

9.2

2.9

14.5

2.2

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Conversions from Seven to Revolution progress

A large insurance company customer has agreed to convert from StatPro’s legacy StatPro Seven software to its flagship StatPro Revolution cloud service. The three-year contract has a minimum value of £1.5m and represents a 77% increase in annual subscription. The customer selected StatPro Revolution following a competitive tender, and the capabilities of Revolution’s new fixed income attribution and risk module were critical when the client reviewed its options. The contract also includes performance and equity attribution as well as composites. Following this conversion, the group has c £5m of legacy Seven annual software subscriptions to convert. StatPro is on course to complete the full conversion of most of the remaining Seven clients over the next two years. As the process of conversion comes to a close, the group will continue to realise significant operational savings in IT costs (primarily hosting costs) as well as simplify operational complexity.

Upward pressure on forecasts

We are maintaining our forecasts for now and will review them following the interim results. However, given the latest news, we acknowledge there is upward pressure to our forecasts.

Valuation: Highly scalable cloud computing upside

StatPro’s stock trades on c 17x our FY19e EPS, which falls to c 14x in FY20e and to c 12x in FY21e. Alternatively, the shares trade on c 1.9x FY19 EV/sales, around a third of the level of StatPro’s larger US financial software peers and a quarter of the level of US-based pure software-as-a-service companies. Our DCF model, when incorporating 10-year organic revenue CAGR of c 3.7%, terminal growth of 2%, a long-term operating margin target of 24.0% and a WACC of 9%, values the shares at 235p, 76% above the current share price.

Exhibit 1: Financial summary

£000s

2016

2017

2018

2019e

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

37,545

49,260

54,841

58,400

61,818

65,138

Cost of Sales

0

0

0

0

0

0

Gross Profit

37,545

49,260

54,841

58,400

61,818

65,138

EBITDA

 

 

5,104

6,838

9,011

9,544

10,677

12,475

Adjusted Operating Profit

 

 

3,461

4,917

7,214

7,925

9,064

10,803

Amortisation of acquired intangibles

(1,060)

(2,243)

(3,161)

(3,161)

(3,161)

(3,161)

Exceptionals

(11,378)

(3,934)

(2,578)

(1,000)

0

0

Share based payments

(361)

(626)

(207)

(675)

(700)

(725)

Operating Profit

(9,338)

(1,886)

1,268

3,089

5,203

6,917

Net Interest

(786)

(1,585)

(2,256)

(1,689)

(1,514)

(1,314)

Profit Before Tax (norm)

 

 

2,675

3,332

4,958

6,236

7,551

9,489

Profit Before Tax (FRS 3)

 

 

(10,124)

(3,471)

(988)

1,400

3,690

5,603

Tax

(489)

563

(141)

(935)

(1,435)

(1,898)

Profit After Tax (norm)

2,843

4,505

5,434

5,301

6,116

7,591

Profit After Tax (FRS 3)

(10,613)

(2,908)

(1,129)

465

2,255

3,705

Minority interests

(94)

(131)

(21)

0

0

0

Net income (norm)

2,186

3,764

4,796

5,301

6,116

7,591

Net income (statutory)

(10,707)

(3,039)

(1,150)

465

2,255

3,705

Average Number of Shares Outstanding (m)

65.3

64.8

65.7

65.9

66.2

66.5

EPS - normalised (p)

 

 

3.3

5.8

7.3

8.0

9.2

11.4

EPS - FRS 3 (p)

 

 

(16.4)

(4.7)

(1.8)

0.7

3.4

5.6

Dividend per share (p)

2.90

2.90

2.90

2.90

2.90

2.90

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

13.6

13.9

16.4

16.3

17.3

19.2

Operating Margin (before GW and except.) (%)

9.2

10.0

13.2

13.6

14.7

16.6

BALANCE SHEET

Fixed Assets

 

 

59,088

70,864

69,615

67,713

65,692

63,601

Intangible Assets

55,696

64,793

63,701

61,958

60,004

57,956

Tangible Assets

2,742

3,303

3,447

3,288

3,221

3,178

Other assets

650

2,768

2,467

2,467

2,467

2,467

Current Assets

 

 

19,081

20,912

18,438

20,393

25,403

31,914

Stocks

0

0

0

0

0

0

Debtors

14,725

16,601

15,867

16,897

17,886

18,846

Cash

4,356

4,311

2,571

3,497

7,517

13,068

Current Liabilities

 

 

(35,686)

(38,171)

(35,224)

(37,509)

(39,813)

(42,145)

Creditors

(27,227)

(30,720)

(27,433)

(29,718)

(32,022)

(34,354)

Short term borrowings

(8,459)

(7,451)

(7,791)

(7,791)

(7,791)

(7,791)

Long Term Liabilities

 

 

(9,897)

(22,989)

(25,444)

(22,518)

(19,591)

(16,665)

Long term borrowings

(5,961)

(17,076)

(19,418)

(18,719)

(18,019)

(17,320)

Other long term liabilities

(3,936)

(5,913)

(6,026)

(3,799)

(1,572)

655

Net Assets

 

 

32,586

30,616

27,385

28,080

31,690

36,705

CASH FLOW

Operating Cash Flow

 

 

7,454

10,676

12,839

15,748

17,313

19,404

Net Interest

(500)

(1,227)

(1,873)

(1,839)

(1,514)

(1,314)

Tax

(1,294)

(144)

(763)

(350)

(873)

(1,359)

Capex

(6,445)

(7,213)

(7,794)

(7,997)

(8,286)

(8,552)

Acquisitions/disposals

(4,786)

(10,269)

(3,417)

(2,026)

0

0

Equity financing

(2,079)

926

147

0

0

0

Dividends

(1,877)

(2,012)

(1,980)

(1,912)

(1,921)

(1,929)

Net Cash Flow

(9,527)

(9,263)

(2,841)

1,625

4,720

6,250

Opening net debt/(cash)

 

 

(1,283)

10,065

20,217

24,638

23,013

18,293

Other

(1,821)

(889)

(1,580)

()

0

0

Closing net debt/(cash)

 

 

10,065

20,217

24,638

23,013

18,293

12,043

Source: StatPro accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by StatPro Group and prepared and issued by Edison, in consideration of a fee payable by StatPro Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison’s policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers’ exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by StatPro Group and prepared and issued by Edison, in consideration of a fee payable by StatPro Group. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison’s policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers’ exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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