Margins to expand with scale and growth

StatPro Group 11 April 2019 Outlook
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StatPro Group

Margins to expand with scale and growth

Final results

Software & comp services

11 April 2019

Price

112.5p

Market cap

£74m

Net debt (£m) at 31 December 2018

24.6

Shares in issue

65.6m

Free float

82%

Code

SOG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.5

0.9

(30.8)

Rel (local)

(2.6)

(6.9)

(33.7)

52-week high/low

180.50p

105.00p

Business description

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

Next events

AGM

May 2019

Trading update

July 2019

Interim results

August 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

StatPro continues to evolve and the new group structure creates opportunities to drive growth. Margins are now on a clear uptrend as the business scales, and there will be additional margin benefits as c £4m of costs drop out as the group’s software platforms are streamlined over the next few years. FY18 numbers were in line with the January trading update and we have maintained our forecasts, albeit with some minor tweaks. In our view, the shares continue to look attractive, given the group’s c £56m recurring revenue book and the declining rating (c 10x FY21e), 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

19.4

2.6

12/18

54.8

5.0

7.3

2.9

15.4

2.6

12/19e

58.0

6.2

8.0

2.9

14.0

2.6

12/20e

61.0

7.4

9.1

2.9

12.4

2.6

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

Final results: ARR rises by 5% to £55.7m

Group revenue grew by 11% (13% at constant currency) to £54.8m and adjusted EBITDA surged by 32% (34% at constant FX) to £9.0m as the margin increased by 250bp to 16.4%. Annualised recurring revenue (ARR) grew by 5%, or 1% organically, over the year to £55.7m. This number underpins our revenue forecasts, in conjunction with new business, churn and non-recurring professional services.

M&A remains a sector highlight

M&A activity remains elevated in the industry, with Deutsche Borse just announcing the acquisition of Axioma, a StatPro competitor in the risk space, for $850m or c 8.5x sales. SS&C bought Eze Software (July 2018) for $1.45bn or c 5.2x sales, while State Street acquired Charles River (July 2018) for $2.6bn or c 8.7x sales. Meanwhile, Fidessa was acquired at >4x sales by ION in 2018 and key StatPro competitor BISAM was acquired by FactSet in 2017 for $205.2m or 7.3x sales.

Forecast changes: Broadly maintained, FY21 added

We have maintained our FY19 and FY20 revenue forecasts. We have cut our depreciation forecasts while increasing interest forecasts and hence EPS is broadly maintained. We have reduced our FY19 and FY20 net debt estimates, as we now forecast the remaining c £3.6m acquisition liabilities for Delta to be settled in FY22. Consequently, we now forecast the group to end FY19 with net debt of £21.2m (previously £22.6m) which falls to £16.5m a year later (£20.4m)

Valuation: Highly scalable cloud computing upside

StatPro’s stock trades on c 14x our FY19e EPS, which falls to c 12x in FY20e and to c 10x in FY21e. Alternatively, the shares trade on c 1.6x 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% (see page 12 for details) and a WACC of 9%, values the shares at 229p, more than double the current share price.

Investment summary: Margin expansion

Company description: Asset manager software supplier

StatPro’s software products are used by asset managers to measure the performance and risk profile of their funds under management. StatPro’s flagship product, StatPro Revolution, is a multi-tenant cloud service (or SaaS) application. The group has c 500 customers, including c 115 of the world’s top 500 asset managers, and the largest customer generates less than 5% of revenues. While the group's products have been primarily used for middle office functions, the acquisition of Delta in 2017 significantly extended the offering into front offices. The acquisition of ODDO BHF’s regulatory risk services bureau in 2018 means the group can now offer a complete managed service, enabling customers to outsource their entire performance and risk functions to StatPro.

Financials: c 96% recurring revenue, c 55% cloud services

StatPro has always operated a rental model and contracts are typically for three years. The only non-recurring revenues are a small amount of professional services. At end-2018, the group’s annualised recurring revenues (ARR) stood at £55.7m, underpinning our forecasts, of which €33.4m were from cloud services – the primary growth segment. Operating margins dipped from c 25% in FY09 to sub-10% over FY14–17 as management took the decision to invest in an industry-leading cloud platform, which temporarily expanded the cost base. Nevertheless, StatPro is now emerging from the end of this investment phase and margins are now expanding sharply (up 320bp to 13.2% in FY18). We forecast margin improvements to continue as the platform scales and c £4m of costs savings are realised in the medium term from platform streamlining.

Exhibit 1: Revenue by type of service

£m

2017

2018

Existing ops

Acquisition

Total

Change (%)

StatPro Revolution

23.47

29.40

0.83

30.23

29%

StatPro Seven

19.70

18.62

-

18.62

(5%)

Data fees

4.07

4.03

-

4.03

(1%)

Total recurring revenue

47.24

52.05

0.83

52.88

12%

Professional services and other revenue

2.02

1.96

-

1.96

(3%)

Total revenue

49.26

54.01

0.83

54.84

11%

Percentage of revenue that is recurring

96%

96%

100%

96%

Source: StatPro accounts

Sensitivities: Consolidation, financial markets, competition

We highlight three key sensitivities: end-market vibrancy (mounting fee pressures and rising costs is spurring closures and mergers among asset management firms, though StatPro is largely insulated by its per-portfolio revenue model), competition (StatPro holds a significant first-mover advantage and its cloud products are difficult to replicate) and sector evolution (there is a risk that large tech companies could enter the asset management space, and that the robo/online advisory industry could pose a threat to the traditional asset management industry).

Valuation: Sector deals indicate significant upside

The active M&A environment continues to run unabated across the financial software sector with SS&C and ION acting as major consolidators. Most notably, the group’s key competitor, BISAM, was acquired by FactSet for 7.3x sales in March 2017, which translates to a price of c £6 for StatPro. While StatPro is a small company, it has spent a decade transitioning to the cloud and has the only cloud-based, multi-tenant portfolio analytics solution that can provide such a broad range of functions across performance, risk and regulation. With the heavy investment now beginning to pay off, we believe StatPro remains an attractive investment at 1.6x FY20 revenues.

Company description: Cloud-based portfolio analytics

StatPro is a specialist cloud-based analytics software provider, targeting the global asset management industry. The group’s flagship solution, StatPro Revolution, is an integrated, cloud-based performance and risk platform designed to increase productivity and lower costs. StatPro Revolution is used both for internal purposes and for client reporting. The cloud software includes functionality across both equity and fixed income, for performance measurement, attribution analysis and risk management. Cloud-based technology enables a software vendor to increase its operational efficiency while allowing its clients to handle a larger and more complex workload, without increasing headcount or technology costs.

The company has c 500 clients, including c 115 of the world’s top 500 fund managers and 10 of the top 15. The 500 clients also include c 50 asset service providers, which can be viewed as StatPro Revolution resellers/distributors. However, they act as customers and handle their own support.

New divisional structure

From January, the business operates from three new divisions: Revolution (analytics division), Source: StatPro (data division) and Infovest (integration and data management division). This structure will make the operations of the business clearer, provide distinct divisional management focus and enable growth in each division based on specific divisional priorities.

Revolution is the analytics division, comprising the cloud-based Revolution along with Delta and Alpha, which are being integrated into it. It also includes the legacy software modules of StatPro Seven, which are migrating to the cloud along with StatPro Composites (SC), the group’s traditional software module, which enables the aggregation of individual portfolios representing a similar investment mandate and enables compliance with GIPS.

The division also includes the group’s expanded managed services business. In order to use the SaaS option, clients require headcount to operate the software. However, it is typically more cost effective for small and medium-sized institutions to outsource this function to specialists (eg fund administrators or StatPro), and to focus on analysis, trade decision making and execution.

StatPro: Source is the data division, with services including data revenues from market data, managed services, evaluated bond prices, index services, yield-curves and complex asset pricing.

Infovest offers integration and data management services using the group’s data warehouse, ETL (‘Extract, Transform and Load’) and reporting tool, regulatory post-trade compliance tool StatPro Portfolio Manager and StatPro Enterprise Reporting.

Exhibit 2: Pro forma revenue as at 31 December 2018

£m

ARR as at 31 December 2018

Professional services

Pro forma revenue as at 31/12/18

Intra divisional ARR

Pro forma external revenue as at 31/12/18

% of total

Revolution division

45.22

1.28

46.50

46.50

80.7%

Source: StatPro division

8.50

8.50

(3.00)

5.50

9.5%

Infovest division

4.96

0.68

5.64

5.64

9.8%

Total

58.68

1.96

60.64

(3.00)

57.64

100.0%

Source: StatPro

Strategy: Cloud transition and acquisitions

StatPro has expanded its product suite and geographic position through a series of acquisitions over its 25-year history. In 2008, StatPro took the decision to build a cloud computing product. To achieve this, management exploited the group’s domain knowledge, technical skills and access to data to develop an entirely new software platform from scratch, and this product is now the group’s flagship solution. The development and establishment of StatPro Revolution has focused management time for many years and the transition to cloud is a painful process for any software business to undergo. Now StatPro is emerging as a much more efficient and scalable business with a solution at the forefront of the industry, and c 60% of end-2018 run-rate revenues are from Revolution. Management is now shifting its focus on driving the growth, exploiting the group’s high-quality client base, people talent and global office structure. The focus is on organic growth and increasing margins along with selected acquisitions.

Acquisitions are a key part of the strategy

Acquisitions form a key plank of StatPro’s strategy. Over the past three years it acquired UBS Delta for €13.05m in May 2017, InfoVest (100% owned since February this year) and Investor Analytics (renamed StatPro Revolution Alpha). These acquisitions have cemented StatPro’s position at the forefront of the financial analytics space and help to accelerate the scalability of the platform. While strategically targeting accelerating organic growth, management will continue to target acquisitions consistent with its strategy and has the financial capability to do so.

The acquisition of Delta was a tremendous coup for StatPro, as it was able to acquire the business on very favourable terms (we estimated at 0.8x sales). This was because UBS Delta’s technology needed to be refreshed and it was increasingly difficult for non-software businesses to maintain an application. The £3.6m of outstanding Delta acquisition liabilities are now payable in FY22. There will also be c £2m of cost savings when the transition has completed, at which point StatPro will no longer have to pay the vendor, UBS, support fees. During 2018 StatPro resolved issues so that there will be a seamless transition for all customers to Revolution.

Exhibit 3: Acquisition history

Announced

Price

Revenues

EV/sales

Note

Investor Analytics (renamed StatPro Revolution Alpha)

22/01/2016

$10m initial & £0.7m in FY18

$5m

2.0

Added Risk Factor and Monte Carlo models to StatPro's Historical Simulation risk model.

InfoVest

12/02/2016

£2.5m

£0.76m in yr to Feb 15

3.3

Swapped StatPro Seven compliance module (SPC) for a 51% stake. Additional £2.5m cash purchases to 100%.

UBS Delta

07/04/2017

c €13m

£14.5m

0.8

Front office portfolio analysis and risk management system focused on fixed income acquired from UBS.

Regulatory risk services bureau from ODDO BHF

02/07/2018

£1.2m

c £1.6m

0.8

Adds a full managed service for regulatory risk reporting capability.

Source: StatPro

Acquisition of regulatory risk services bureau from ODDO BHF

In mid-2018, StatPro acquired ODDO BHF’s regulatory risk services bureau, for an undisclosed cash sum. The acquisition added a full managed service for regulatory risk reporting with the unit producing AIMFD reports, UCITS reports, liquidity reports, liquidity risk reports and Solvency 2 reports. The unit used a legacy technology that has transitioned to the StatPro Revolution platform and resulted in significant cost savings and a modernised solution. The unit has operated in the Germany and Luxembourg markets for more than a decade and it has 10 asset management and fund administration clients. StatPro plans to expand the service to other regions.

Market environment and growth drivers

StatPro's products are targeted at the global wealth management industry, which relies on assets under management (AuM) to provide a source of revenue from which to extract fees. StatPro provides solutions that enable its clients to increase their AuM and improve profit margins.

The outlook for fund managers has been showing improvements with global AuM rising by 7% to $79.2tn in 2017, according to Boston Consulting Group, compared with 7% growth in 2016 and 1% growth in 2015. Growth in AuM comes from net inflows of capital from clients along with the market growth of asset prices.

Significant pressure on management fees has been encouraging asset managers to seek to manage their costs while increasing their service levels. Meanwhile, the rise in passive investing and the pressure on fees has been driving significant M&A activity in the investment management industry. Sector M&A reached a record 253 deals in 2018 (Sandler O’Neill), up from 210 in 2017 and surpassing the previous record of 243 in 2007.

In its Global Asset Management 2018 The Digital Metamorphosis report, BCG suggests that ‘Five years from now, asset managers will look very different from the way they look now, in part because of digital innovation and in part owing to structural shifts in the market’. StatPro is the first cloud-based analytics platform targeting the sector and is therefore well-placed to address the market. This is due to the scalability and efficiency of a native cloud platform. The group’s cloud solutions offer greater flexibility, along with evolving development, exemplified by self-service reports, configurable dashboards (which enable clients to specify precisely what each user can see) and the ability to link to other systems with APIs (application programming interface). The cloud solutions can also take advantage of elastic computing power.

StatPro is positioning itself to benefit from the outsourcing shift in the asset management industry by targeting asset service providers that resell the group’s software. According to StatPro, only c 10% of the crucial US market is outsourced, compared to c 95% in Australia, and there are strong commercial pressures that are encouraging asset managers to outsource. Indeed, that is why competitors that only supply fund managers are vulnerable.

StatPro is the only SaaS provider of performance, attribution and risk solutions and it also offers APIs and a full managed service. StatPro stands to benefit as customers increasingly become more relaxed about operating in the cloud. Exhibit 4 highlights the key areas for StatPro’s sales focus.

Exhibit 4: Sales focus

Market segment

Existing clients

Approx % of revenue

Opportunity

Fund Administrators (PBOR, or performance book of record)

62

22%

c $200m

Risk Compliance (anyone with Ucits or AIFMD Requirements - also SII)

102

11%

30,000 UCITS $100m+ (StatPro has 3,000 funds as clients)

Gips® Compliance (asset managers, private wealth)

81

14%

GIPS 2020 extends the market

Fixed Income for Front Office (risk, attribution & performance)

121

28%

Replacement opportunity of Point and Yield Book plus general strong market growth c $400m market

Managed Index Service (fund admins and asset managers) (uses Infovest)

22

<1%

Replacement opportunity of RIMES and Factset plus charging existing clients market rate c $130m market

Managed Service for PBOR (uses Infovest)

25

3%

Complements the PBOR and Risk Compliance market segments and doubles the opportunity by adding the managed service

Yield Curves

5

2%

Needed for more accurate pricing of fixed income assets. Module sale to fixed income clients c $50m market

Infovest Division

48

9%

An expanding market with a wide variety of solutions for data management

Source: StatPro

Key growth drivers

Reseller channel (asset service providers). Around 20% of group revenues are from the reseller channel, principally fund administrators. StatPro expects this channel to continue to grow and to be a major factor in driving organic growth.

Outsourced managed services. StatPro sees this as a significant driver of growth, since many smaller asset service providers lack the technical skills and business knowledge to run StatPro’s software. Exhibit 5 shows how the outsourced managed service utilises all three of the group’s divisions, while a third-party approach, via a fund administrator, utilises two divisions.

Exhibit 5: How the divisions work together

Source: StatPro

Under-utilised data assets. The group’s data business is a critical component of software services. As the focus has been on the cloud strategy, management has not spent time on commercialising the group’s data assets. However, the group has now appointed a CEO for its Source: StatPro data division who will concentrate on commercialising these assets. The analogy of stock exchanges growing their data assets into significant cash cows gives some indication of the potential here.

Acquisitions: Scaling up the platform is expected to boost margins. The acquisitions of Delta and the regulatory service bureau from ODDO BHF highlight the opportunities that are available to pick up assets at attractive prices to bolt on to the business.

Competitive market environment

StatPro has two main sets of competitors: the major data suppliers (notably Bloomberg and FactSet) and smaller specialist players (including BISAM, now owned by FactSet), SS&C (Sylvan, Anova and HiPortfolio), Eagle (owned by BNY Mellon) and others. The data suppliers use mainframe systems and are multi-tenant by definition, but these platforms are much more expensive to run. Also, data suppliers lack data controls and users need to ensure the data are accurate before use.

StatPro’s Performance module runs off Amazon Cloud, which means users can leverage vast processing (CPU) power when required so data can be processed at very high speed, while mainframe systems and traditional software installations can only use the CPU power on their systems. Most established players lack a pure cloud solution. While start-ups are likely to embrace the cloud, there are significant barriers to entry: business knowledge, technological know-how and, crucially, the data (which need to cover all assets and be accurate).

In the risk space, StatPro competes with heavyweights MSCI (RiskMetrics) and SunGard (owned by FIS), as well as a number of smaller players.

Exhibit 6: Competitors

System providers

Mainframe terminals

Aladdin (BlackRock)

Bloomberg

SimCorp

FactSet

Challenges: cost, complexity and time to market.

Challenges: cost, flexibility and integration.

Specialist risk software

New entrants

MSCI (RiskMetrics and Barra)

Cloud Attribution

Axioma

Clearwater Analytics

Challenges: cost, integration and technology.

Challenges: functional depth, data management & global support.

System providers

Aladdin (BlackRock)

SimCorp

Challenges: cost, complexity and time to market.

Specialist risk software

MSCI (RiskMetrics and Barra)

Axioma

Challenges: cost, integration and technology.

Mainframe terminals

Bloomberg

FactSet

Challenges: cost, flexibility and integration.

New entrants

Cloud Attribution

Clearwater Analytics

Challenges: functional depth, data management & global support.

Source: StatPro

Financials: Modest growth, margin expansion

Business model: Priced per portfolio, long-term contracts

StatPro has always operated a rental model, with payments in advance, meaning the model is highly cash generative. A key objective has been to grow its annualised recurring revenue book, which has begun to accelerate, with the help of acquisitions, as shown in Exhibit 8. StatPro sells its software on a per-portfolio basis (similar to a per-user model) with a minimum subscription of around $30–40k. Sales cycles are typically six to nine months and StatPro aims to lock clients into multi-year deals; contract terms are typically three years. Taking professional services is typically recommended to ensure that customers are making full use of the products.

StatPro’s routes to market

StatPro sells directly to fund managers and uses the indirect sales channel, via asset service providers. StatPro has a team of 20 salespeople primarily focused on the direct sales channel. The strategy has evolved as Revolution has gained in sophistication, with the group hiring more senior salespeople. The team operates out of North America, Europe (London) and Asia-Pacific (Sydney).

Direct channel: targeting investment managers of all types and sizes as they look to replace legacy technology and improve their digital distribution strategy. Profit margin pressure and competition are forcing asset managers to look at their technology footprint to ensure they are efficient and allowing the business to focus on core operations and clients.

Indirect channel: primarily focused on fund administrators that are ‘gate keepers’ to large pools of portfolios. These third parties effectively outsource their IT to StatPro, implementing the solution on a white-label basis. Historically, many of these players spent significant sums developing their own in-house solutions, which cost a lot to maintain. StatPro Revolution makes these solutions obsolete.

As StatPro Revolution gains scale, StatPro believes it will increasingly benefit from the viral effect of people sharing portfolio access with each other.

Final 2018 results: ARR edges higher while margins expand

Group revenue grew by 11%, or 13% at constant currencies, to £54.8m (we forecast £54.7m), helped by six months’ contribution from the ODDO-BHF risk services acquisition. Overall organic growth was flat. Adjusted operating profit rose by 47% to £7.2m, with the operating margin lifting by 320bp to 13.2%.

While the gross margin (after cost of services) dipped in FY18, management seeks to drive the margin higher as the business scales. It also expects R&D/sales to decline as the business scales. Sales and marketing costs have declined as the sales headcount slipped by three to 20, and the fund administrator (reseller) channel continues to gain in importance.

Exhibit 7: Margin analysis

FY17

FY18

Gross profit margin

51.9%

50.9%

R&D

(16.3%)

(15.5%)

Sales & marketing

(13.5%)

(11.9%)

General and administration

(8.2%)

(7.1%)

Total costs

(38.0%)

(34.5%)

Adjusted EBITDA margin

13.9%

16.4%

Source: StatPro

ARR grew 5% to £55.7m, driven by the acquisition of ODDO-BHF risk services and by the 4% organic growth in ARR in StatPro Revolution, while organic growth was 1%. Adjusted earnings per share rose 26% to 7.3p. The annual dividend was maintained at 2.9p.

Exhibit 8: Movement in annualised recurring revenue (ARR)

£m

As at 31/12/17

Net impact of FX

As 1/1/18

ARR from ODD-BHF acquisition

New contracted revenue/increases

Conversions

Cancellations/ reductions

Net change

Net increase/ decrease

Recurring licence fees as at 31/12/18

Change in total ARR

Change in ARR at constant FX

Change in ARR at constant FX excluding acquisitions

Revolution (Cloud)

30.06

0.50

30.56

1.51

3.45

1.14

(3.23)

1.36

2.87

33.43

11%

9%

4%

Seven (Software)

18.92

(0.01)

18.91

1.36

(1.14)

(1.09)

(0.87)

(0.87)

18.04

(5%)

(5%)

(5%)

Data

4.06

0.03

4.09

0.18

(0.06)

0.12

0.12

4.21

4%

3%

3%

Total

53.04

0.52

53.56

1.51

4.99

0

(4.38)

0.61

2.12

55.68

5%

4%

1%

Source: StatPro

There were acquisition-related restructuring costs of £2.98m, of which £1.27m primarily relates to the acquisition of the regulatory risk service from ODD-BHF while £1.71m related to the restructuring of the core business as part of the creation of three divisional operating units.

Exhibit 9 shows the ARR distribution profile for StatPro Revolution. The average ARR per client has continued to rise as the group continues to shift away from smaller customers (StatPro has a minimum price of $18k and is trying to encourage the small customers to take additional services) and as its asset service provider resellers take more portfolios.

Exhibit 9: StatPro Revolution annualised recurring revenue (ARR) distribution profile

Annualised
revenue (£000)

No of
clients

Average revenue/
client (£000)

Annualised
revenue (£000)*

No of
clients

Average revenue/
client (£000)*

Annualised revenue bands

2017

2017

2017

2018

2018

2018

<£10k

308

82

3.8

222

54

4.1

£10k-£50k

3,181

127

25

3,140

123

25.5

£50k-£100k

4,088

54

75.7

3,657

50

73.1

£100k-£200k

10,312

74

139.4

10,099

71

142.2

>£200k

12,669

32

395.9

16,312

43

379.3

Total

30,558

369

82.8

33,430

341

98

Source: StatPro. Note: *At constant currency.

SaaS KPIs – LTV:CAC ratio increases to an impressive 8.5

StatPro introduced a set of SaaS-based KPIs in 2015. The average cost of acquiring customers is calculated by dividing the sales and marketing spend by the number of new customers. The increase in the last two years, along with the increase in average ARR per customer, reflects the focus on larger customers. The implied customer lifetime is 1 divided by the three-year trailing churn rate, which stands at 11% (FY18’s churn rate was 8%). The implied customer lifetime value is the implied customer lifetime multiplied by the ARR per customer. The data show the impact of the inclusion of Delta, which has provided an additional boost to both the cost of acquiring customers and revenue per customer, and there has also been an increase in churn. The aim is to boost the LTV:CAC, ratio which was a highly respectable 8.5 at FY18. This means that the value generated from a typical customer is 8.5x the cost of acquiring a customer; a ratio of 3 is seen as minimum in the SaaS industry and 5 is seen as good.

Exhibit 10: SaaS-based KPIs

FY16

FY17

FY18

Average cost of acquiring customer (‘CAC’) (£000s)

96.1

128.6

131.8

Implied customer lifetime (years)

10.8

9.4

9.2

Average ARR per customer (£000s)

86.6

106.1

120.8

Implied customer lifetime value (‘LTV’) (£000s)

938

997

1,114

LTV: CAC

9.8

7.8

8.5

Source: StatPro

Current trading and outlook – fund administrators gain traction

StatPro noted that ‘2018 ended strongly, providing good visibility into the first half of 2019 with a solid pipeline of well-qualified prospects. The group will maintain its focus on improving margins in the current year and continues to trade in line with expectations.’ The focus is on organic growth, increasing margins along with selected acquisitions. A key determinant of the outlook will be the impact of the new group structure, with the three new divisions providing greater clarity along with the potential to drive more out of the group’s data assets.

In early April, StatPro announced a $1.2m contract extension for Revolution via a major fund administrator. This shows the fund administration channel is continuing to gain traction and StatPro says it expects to see further growth from major fund administrators during the course of the year.

Forecasts: Growth to accelerate, margins to expand

We have maintained our revenue forecasts. However, we have amended the revenue mix, which reflects the strength of InfoVest, and we have introduced FY21. Our forecasts reflect 4.2%, 5.2% and 5.4% organic growth for FY19, FY20 and FY21. We have cut our depreciation forecasts while increasing interest forecasts and hence our EPS forecasts are broadly maintained. We forecast operating margins to rise by 40bp in FY19, 100bp in FY20 and 200bp in FY21, driven by the scalability of the platform. We also note that in the medium term the group could potentially generate c £4m in annual cost savings from streamlining its platforms: c £2m when the transition of Delta to Revolution has completed (which covers support functions that are currently handled by UBS) and £2m (primarily from hosting costs) when the StatPro Seven transition is completed.

Revenues by category: we forecast traditional software revenue to decline by £2.0m annually. This largely reflects the conversions to Revolution. We forecast Revolution to jump by 16% in FY19, 14% in FY20 and 13% in FY21, driven by organic growth, conversions and a full year contribution from the regulatory risk service bureau acquisition in FY19. We forecast data revenues to grow by 5% in FY19 and by 4.5% in FY20, aided by the new initiatives to exploit the data IP. We forecast professional services to grow at 2% pa.

Costs: we forecast operating costs (excluding net capitalisation of development costs) to rise by 4% to £19.1m in FY19, by 4% to £50.8m in FY20 and by 3% to £52.3m in FY21.

We have reduced our FY19 and FY20 net debt forecasts, as we now forecast the remaining c £3.6m acquisition liabilities for Delta to be settled in FY22. Consequently, we now forecast the group to end FY19 with net debt of £21.2m (previously £22.6m), which falls to £16.5m a year later (£20.4m).

Exhibit 11: Forecast changes

(£000s)

Old

Actual

Change

Old

New

Change

Old

New

Change

New

 Revenues

2018e

2018

(%)

2019e

2019e

(%)

2020e

2020e

(%)

2021e

StatPro Revolution

31,108

30,230

(3)

36,171

35,149

(3)

40,926

39,919

(2)

44,986

StatPro Seven

17,380

18,620

7

15,380

16,620

8

13,380

14,620

9

12,620

Data

4,151

4,030

(3)

4,359

4,232

(3)

4,555

4,422

(3)

4,601

Professional services

2,060

1,960

(5)

2,102

1,999

(5)

2,144

2,039

(5)

2,080

Group Revenue

54,700

54,841

0

58,011

58,000

(0)

61,005

61,000

(0)

64,287

Growth (%)

11.0

11.3

6.1

5.8

5.2

5.2

5.4

Gross Profit

54,700

54,841

0

58,011

58,000

(0)

61,005

61,000

(0)

64,287

Opex (before devt costs depn)

(46,402)

(47,273)

2

(49,072)

(49,081)

0

(51,022)

(50,840)

(0)

(52,259)

Capitalisation of dev costs (net)

703

1,239

76

561

581

3

517

339

(34)

274

Adjusted EBITDA

9,000

8,807

(2)

9,500

9,499

0

10,500

10,499

(0)

12,303

Depreciation

(1,925)

(1,593)

(17)

(1,869)

(1,619)

(13)

(1,813)

(1,613)

(11)

(1,662)

Adjusted operating profit

7,075

7,214

2

7,631

7,880

3

8,688

8,886

2

10,641

Operating margin (%)

12.9

13.2

13.2

13.6

14.2

14.6

16.6

Growth (%)

43.9

46.7

7.9

9.2

13.8

12.8

19.7

Net interest

(1,839)

(2,256)

23

(1,414)

(1,664)

18

(1,214)

(1,464)

21

(1,264)

Profit before tax norm

5,237

4,958

(5)

6,218

6,217

0

7,474

7,423

(1)

9,377

Amortisation of acquired intangibles

(3,243)

(3,161)

(3)

(3,243)

(3,161)

(3)

(3,243)

(3,161)

(3)

(3,161)

Share based payments

(650)

(207)

(68)

(675)

(675)

0

(700)

(700)

0

(725)

Exceptional items (net of tax)

0

(1,961)

0

0

0

0

0

Profit before tax

1,344

(371)

(128)

2,300

2,381

4

3,531

3,562

1

5,491

Taxation

(372)

(141)

(62)

(933)

(932)

0

(1,413)

(1,410)

(0)

(1,875)

Minority interest

(40)

(21)

(48)

0

0

0

0

0

Net income

932

(533)

(157)

1,367

1,448

6

2,118

2,152

2

3,616

Adjusted EPS (p)

7.3

7.3

(1)

8.0

8.0

0

9.1

9.1

(1)

11.3

P/E - Adjusted EPS (x)

 

15.4

 

 

14.0

 

 

12.4

 

10.0

Source: StatPro accounts, Edison Investment Research

Investment: we assume the group spends 15.3% of revenue on R&D in FY19, declining by 37.5bp per annum over the forecast period, of which c 73% is capitalised and amortised over three years.

Exhibit 12: Research & development

(£000s)

FY13

FY14

FY15

FY16

FY17

FY18

FY19e

FY20e

FY21e

R&D

(4,440)

(4,990)

(4,930)

(5,943)

(8,010)

(8,520)

(8,845)

(9,074)

(9,322)

% of sales

13.7%

15.6%

16.3%

15.8%

16.3%

15.5%

15.3%

14.9%

14.5%

change %

6.2%

12.4%

-1.2%

20.5%

34.8%

6.4%

3.8%

2.6%

2.7%

Capitalised

3,404

3,615

4,050

4,570

6,023

6,533

6,492

6,651

6,833

% capitalised

76.7%

72.4%

82.2%

76.9%

75.2%

76.7%

73.4%

73.3%

73.3%

Amortised

(3,401)

(3,348)

(3,538)

(3,875)

(4,436)

(5,294)

(5,913)

(6,312)

(6,559)

% amortised

68.3%

67.2%

67.4%

67.3%

68.7%

65.8%

63.7%

64.0%

64.3%

Net capitalised

3

267

512

695

1,587

1,239

580

339

274

Cumulative

4,981

5,248

5,760

6,455

8,042

9,281

9,861

10,199

10,473

R&D as % of operating costs

15.8%

17.0%

17.7%

17.1%

17.4%

17.4%

17.4%

17.3%

17.3%

Source: StatPro accounts, Edison Investment Research

Tax: we assume a 15% tax rate in FY19, rising to 19% in FY20 and to 20% in FY21.

Cash flow and balance sheet

FY18 operating cash flow jumped by 20% to £12.8m, which follows a 43% rise in the previous year. After interest of £1.9m, tax of £0.8m and capitalised development costs of £6.9m and purchase of PPE of £0.9m, free cash flow was £2.4m, up from £2.1m in FY17. Excluding acquisition-related restructuring costs of £1.9m, the free cash flow was £4.5m, compared with £5.2m in FY17. After £3.4m of acquisition costs, £0.1m of share issues, £2.0m of dividends and £1.6m of currency movements, net debt increased by £4.4m to £24.6m.

For 2019 we estimate operating cash flow will rise by 22% to £15.7m, comfortably accommodating net interest, tax and capex outlays of £10.0m. Dividend payments of £1.9m and acquisition expenditures of £0.4m (final c €0.4m payment for the regulatory risk bureau of ODDO-BHF) lead to our expectation of net debt falling by £3.5m to £21.2m as at the end-FY19. There are also €4.25m (£3.6m) of acquisition liabilities relating to Delta that are due to be settled in FY22.

Sensitivities: Evolving end-market

The group’s asset management customer base is one of the most high-beta sectors in the market and has been undergoing significant consolidation. Robo-advisers have been entering the market and there is a threat that tech giants could also do so. However, StatPro took the bold decision a decade ago to transition its business model to the cloud and, following years of heavy investment, its technology platform is industry leading and comfortably ahead of its major peers.

We highlight the following sensitivities:

Economic backdrop: clearly, stock market performance will remain volatile and therefore retail investment flows into and out of portfolio asset managers will remain a cyclical feature. The health of the equity and bond markets will therefore partly determine the IT investment budgets of the asset management firms.

General competitive environment: StatPro’s main competitor is in-house IT departments, although we note that a self-built system is not an option for the smaller players. Once asset managers make the purchasing decision to buy an outside solution, there is a range of competing options.

End-market mergers: the asset management industry has undergone significant consolidation in recent years with a record 253 M&A deals in the asset management industry in 2018 (Sandler O’Neill), up from 210 in 2017. Further consolidation is anticipated, driven by the pressure on fees and rising costs and the need to create scale. We note the CEO of Invesco recently said that a third of firms could disappear over the next five years, as mounting fee pressures and rising costs spur more closures and consolidation. However, we note that StatPro is somewhat insulated from this process by its per-portfolio revenue model.

Technological change: there is a risk that a competitor could develop a superior cloud product. However, we know of no competitor that is currently offering a service like StatPro Revolution, and a player would require a combination of technological know-how, domain knowledge and access to data to build a competing product.

Alternative new entrants to end-market: there is a risk that technology companies could enter the market and subsequently threaten StatPro’s traditional customer base. This threat has been discussed for a number of years but has so far failed to crystallise. At the smaller end, there is a growing number of specialist robo and online financial advisers, such as US firms Acorns Grow (associated with PayPal), Betterment, FutureAdvisor (BlackRock), Personal Capital and Wealthfront, which are entering the market and taking share. However, these companies are very small.

Acquisition risk: there is implementation risk in the acquisition strategy.

Valuation: Unique cloud computing opportunity

StatPro is a rare example of a traditional software company that has successfully transitioned to the cloud, and, indeed, is one of the few predominantly cloud companies quoted in London. In addition, it is a rare cloud software business in the quoted financial software space and, as far as we are aware, unique in the asset management vertical.

While the stock is exposed to the volatile asset management sectors, this is tempered by the fact that 96% of group revenues are recurring in nature and 60% of the ARR is now cloud services (or SaaS). StatPro has always been conservatively financed, and has a reputation for generating healthy cash flows, having generated £114m of operating cash flow and £33m of free cash flow over the last 13 years. These numbers are after exceptional costs, which includes £1.9m in FY18.

We highlight the following points on the group’s valuation.

Traditional valuation measures: StatPro’s stock trades on c 14.0x our FY19e EPS, which falls to c 12.4x in FY20e and to 10.0x in FY21e.

Strong cash generation: StatPro has been profitable and generated positive cash flows for many years, and its payment-in-advance model typically generates cash from working capital. The group generated £4.3m of free cash flow before acquisition-related restructuring costs in FY18 (free cash flow yield of 5.8%) and we forecast this to rise to £5.7m in FY19, £6.6m in FY20 and £8.1m in FY21. The forecast numbers translate to free cash flow yields of c 8%, c 9% and 11%, respectively.

Exhibit 13: Cash flow

(£000s)

FY13

FY14

FY15

FY16

FY17

FY18

FY19e

FY20e

FY21e

Adjusted operating profit

4,327

2,875

2,852

3,461

4,917

7,214

7,880

8,886

10,641

Depreciation (incl s/w)

1,136

1,484

1,192

1,643

1,921

1,797

1,619

1,613

1,662

Adjusted EBITDA

5,463

4,359

4,044

5,104

6,838

9,011

9,499

10,499

12,303

Working capital

539

(44)

(1,045)

(104)

2,491

402

290

305

322

Amortisation of devt costs

3,401

3,348

3,538

3,875

4,436

5,294

5,913

6,312

6,559

Exceptional items

0

42

11

(1,421)

(3,089)

(1,868)

0

0

0

Operating cash flow

9,403

7,705

6,548

7,454

10,676

12,839

15,702

17,117

19,183

Net interest

(98)

(10)

(84)

(500)

(1,227)

(1,873)

(1,664)

(1,464)

(1,264)

Tax

(1,616)

(1,173)

(832)

(1,294)

(144)

(763)

(350)

(870)

(1,336)

Purchase fixed assets (incl s/w)

(1,008)

(2,289)

(949)

(1,875)

(1,190)

(1,261)

(1,450)

(1,525)

(1,607)

Capitalised development

(3,404)

(3,615)

(4,050)

(4,570)

(6,023)

(6,533)

(6,492)

(6,651)

(6,833)

Free cash flow

3,277

618

633

(785)

2,092

2,409

5,746

6,607

8,143

Source: StatPro accounts, Edison Investment Research

DCF valuation: our DCF model, when incorporating a 10-year organic revenue CAGR of c 3.7%, terminal growth of 2%, a long-term margin target of 24.0% and a WACC of 9%, values the shares at 229p, more than double the current share price. Our margin assumption is broadly where the margins were in FY07–09, prior to the acceleration in investment to fund the transition to the cloud, which we eased slightly for the managed services expansion. Given the scalability of the platform, in our view this margin target is a fair assumption. We note that the c £4m of cost savings from streamlining the platforms alone would add c 620bp to the operating margin (based on FY21 revenues).

A 100bp increase in the WACC to 10% would reduce the valuation to 194p, while a 400bp reduction in the margin target to 20% (with a 9% WACC) reduces the valuation to 192p. Meanwhile, an acceleration in the organic revenue CAGR to 5% (9% WACC and 24% margin) lifts the valuation to 252p, while a 7% CAGR extends the valuation to 314p.

Peer comparison: the stock trades on 12.4x our EPS forecasts in FY20e, which is a significant discount to nearly all of its peers. Relative to revenues, the stock trades on 1.6x FY19e revenues (around a third of its US peers and below its UK peers) and 9.5x FY20e EBITDA (well below most of its peers).

Exhibit 14: Peer analysis

Share price

Market cap

Market cap

EV/sales (x)

Operating margins

EV/EBITDA (x)

PE (x)

Local curr

Local curr m

£m

Year 1

Year 2

Year 1

Year 2

Year 1

Year 2

Year 1

Year 2

StatPro

112.50

74

74

1.7

1.6

13.6%

14.6%

10.5

9.5

14.0

12.4

1) US-quoted investment management software peers

MSCI

211.89

17,940

13,681

12.7

11.6

50.1%

51.5%

23.2

20.7

34.2

29.6

SS&C

63.86

16,138

12,307

5.1

4.9

36.5%

36.9%

13.2

12.3

17.2

15.4

FactSet

254.95

9,697

7,395

7.0

6.6

31.8%

32.7%

19.6

18.4

26.6

24.2

Envestnet

66.09

3,182

2,427

3.8

3.3

16.6%

17.0%

19.2

16.2

31.1

26.5

Averages

 

5.9

5.4

34.2%

34.8%

18.0

16.3

25.5

22.5

2) Investment management software peers quoted in other countries

SimCorp

623.00

25,230

2,930

7.9

7.4

27.7%

28.0%

27.0

25.3

36.5

33.9

Iress

13.43

2,339

1,279

5.0

4.8

22.7%

24.0%

17.9

16.5

27.9

25.0

Linedata

28.80

205

177

1.7

1.6

16.6%

17.0%

6.6

6.5

10.2

9.7

GBST

1.97

134

73

1.3

1.3

10.6%

11.7%

8.6

6.6

14.7

14.8

Averages

 

2.4

2.3

19.7%

20.5%

11.1

9.8

17.5

16.7

3) UK-quoted financial software peers

First Derivatives

2965.00

778

778

3.7

3.3

13.6%

12.9%

20.9

18.5

37.0

33.1

Microgen

387.50

237

237

2.9

2.7

21.4%

23.5%

12.3

10.5

21.1

17.7

Gresham

89.50

61

61

2.2

2.1

4.4%

6.5%

19.1

15.8

63.1

40.4

Brady

57.50

48

48

1.8

1.7

5.1%

7.9%

12.5

8.8

48.9

16.3

Averages

 

2.5

2.3

9.4%

10.4%

15.3

12.2

36.1

23.1

4) US companies with SaaS business models*

Salesforce

156.97

121,024

92,293

7.5

6.2

18.3%

19.6%

30.7

24.8

56.7

45.4

Workday

190.80

42,358

32,302

11.8

9.6

12.4%

14.4%

61.2

45.6

112.4

84.4

Ultimate Software

330.26

10,463

7,979

7.1

5.9

20.1%

20.7%

29.2

24.0

53.3

43.1

Paycom Software

184.34

10,779

8,220

15.1

12.4

35.4%

36.8%

37.2

29.5

57.6

45.3

Paylocity

85.08

4,502

3,433

9.6

7.9

20.5%

21.8%

33.9

27.1

67.4

52.7

Cornerstone OnDemand

53.94

3,188

2,431

5.6

4.9

14.0%

17.7%

25.2

18.3

55.2

37.8

Instructure

45.20

1,638

1,249

5.8

4.7

(9.0%)

(4.9%)

N/A

N/A

N/A

N/A

Averages

 

7.9

6.6

18.3%

19.6%

33.5

26.2

62.8

48.2

Source: Edison Investment Research, Refinitiv. Note: *These companies are predominantly in the human capital management software or CRM/ERP spaces and none is a direct competitor of StatPro. Prices as at 9 April 2019.

Sector M&A: M&A activity remains elevated in the financial software industry with Deutsche Borse in recent days announcing the acquisition of privately owned Axioma, a StatPro competitor in the risk space, for $850m or c 8.5x annual contract value (ACV) revenues. Deutsche Borse plans to combine Axioma with its index business, which will result in c €30m of pre-tax synergies. While Axioma generated 23% ACV CAGR since 2010, we understand that it is loss making. Axioma operates predominantly a traditional software business model and has a nascent cloud platform.

SS&C bought Eze Software (31 July 2018) for $1.45bn or c 5.2x revenues, while State Street acquired Charles River (20 July 2018) for $2.6bn or c 8.7x revenues. SS&C has been the key sector consolidator, making a string of acquisitions including Advent and DST and also attempted to acquire Fidessa.

FY17 saw a number of transactions that make StatPro look attractively priced. Key competitor BISAM was acquired by FactSet in March for $205.2m or 7.3x sales. Separately, LSE acquired Yield Book (a key competitor of Delta) along with Citi Fixed Income Indices from Citi for 6.4x sales, although we understand that majority of the $685m price related to the indices. Additionally, in September 2017, Nasdaq announced the acquisition of eVestment, a subscription-based analytics and content provider to asset managers, for $705m, or c 8.7x FY17 revenues.

Across the broader financial software sector, M&A has been very active, eg ION has acquired Openlink and Fidessa (for c 4x revenues) and BlackRock has acquired a majority stake in the financial and risk business of Thomson Reuters.


Exhibit 15: 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

58,000

61,000

64,287

Cost of Sales

0

0

0

0

0

0

Gross Profit

37,545

49,260

54,841

58,000

61,000

64,287

EBITDA

 

 

5,104

6,838

9,011

9,499

10,499

12,303

Adjusted Operating Profit

 

 

3,461

4,917

7,214

7,880

8,886

10,641

Amortisation of acquired intangibles

(1,060)

(2,243)

(3,161)

(3,161)

(3,161)

(3,161)

Exceptionals

(11,378)

(3,934)

(2,578)

0

0

0

Share based payments

(361)

(626)

(207)

(675)

(700)

(725)

Operating Profit

(9,338)

(1,886)

1,268

4,044

5,025

6,755

Net Interest

(786)

(1,585)

(2,256)

(1,664)

(1,464)

(1,264)

Profit Before Tax (norm)

 

 

2,675

3,332

4,958

6,217

7,423

9,377

Profit Before Tax (FRS 3)

 

 

(10,124)

(3,471)

(988)

2,381

3,562

5,491

Tax

(489)

563

(141)

(932)

(1,410)

(1,875)

Profit After Tax (norm)

2,843

4,505

5,434

5,284

6,013

7,502

Profit After Tax (FRS 3)

(10,613)

(2,908)

(1,129)

1,448

2,152

3,616

Minority interests

(94)

(131)

(21)

0

0

0

Net income (norm)

2,186

3,764

4,796

5,284

6,013

7,502

Net income (statutory)

(10,707)

(3,039)

(1,150)

1,448

2,152

3,616

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

9.1

11.3

EPS - FRS 3 (p)

 

 

(16.4)

(4.7)

(1.8)

2.2

3.2

5.4

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

16.4

17.2

19.1

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

9.2

10.0

13.2

13.6

14.6

16.6

BALANCE SHEET

Fixed Assets

 

 

59,088

70,864

69,615

67,658

65,542

63,394

Intangible Assets

55,696

64,793

63,701

61,913

59,885

57,791

Tangible Assets

2,742

3,303

3,447

3,278

3,191

3,136

Other assets

650

2,768

2,467

2,467

2,467

2,467

Current Assets

 

 

19,081

20,912

18,438

22,115

26,970

33,436

Stocks

0

0

0

0

0

0

Debtors

14,725

16,601

15,867

16,781

17,649

18,600

Cash

4,356

4,311

2,571

5,334

9,321

14,835

Current Liabilities

 

 

(35,686)

(38,171)

(35,224)

(37,376)

(39,534)

(41,851)

Creditors

(27,227)

(30,720)

(27,433)

(29,585)

(31,743)

(34,060)

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

29,880

33,387

38,313

CASH FLOW

Operating Cash Flow

 

 

7,454

10,676

12,839

15,702

17,117

19,183

Net Interest

(500)

(1,227)

(1,873)

(1,664)

(1,464)

(1,264)

Tax

(1,294)

(144)

(763)

(350)

(870)

(1,336)

Capex

(6,445)

(7,213)

(7,794)

(7,942)

(8,176)

(8,440)

Acquisitions/disposals

(4,786)

(10,269)

(3,417)

(372)

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)

3,462

4,686

6,214

Opening net debt/(cash)

 

 

(1,283)

10,065

20,217

24,638

21,176

16,490

Other

(1,821)

(889)

(1,580)

0

0

0

Closing net debt/(cash)

 

 

10,065

20,217

24,638

21,176

16,490

10,276

Source: StatPro accounts, Edison Investment Research

Contact details

Revenue by geography

Mansel Court
Mansel Road
Wimbledon
London SW19 4AA
United Kingdom
+44 (0)20 8410 9876
www.statpro.com

N/A

Contact details

Mansel Court
Mansel Road
Wimbledon
London SW19 4AA
United Kingdom
+44 (0)20 8410 9876
www.statpro.com

Revenue by geography

N/A

Management team

CEO: Justin Wheatley

CFO: Andrew Fabian

Justin began his career at Micropal, selling performance measurement software to fund managers in the UK. In 1991, he founded an agency in Switzerland to distribute Micropal products and in 1993 he wrote the first version of TAP. Justin founded StatPro in 1994.

Andrew was appointed finance director in 2000. He was previously group financial controller at William Baird. Andrew is a chartered accountant and qualified corporate treasurer.

Managing Director: Dario Cintioli

Non-executive Chairman: Rory Curran

Dario joined StatPro in 2003 following StatPro’s investment in RiskMap. Dario was the original creator of StatPro Risk Management. Before establishing RiskMap, Dario spent 10 years in leading Italian financial institutions, as head of interest rate derivatives and head of quantitative analysis. Today Dario runs the group executive board and is responsible for all StatPro’s products including software and data services.

Rory joined StatPro in November 2016 as a non-executive director and became chairman in November 2017. He was co-founder and executive chairman of 1st Software, which was sold in 2006. Rory left 1st Software in 2008 and has since been a director and investor in a number of technology companies. He is currently a non-executive director of Andromeda Enterprises (trading as Ecodesk), a cloud-based technology business.

Management team

CEO: Justin Wheatley

Justin began his career at Micropal, selling performance measurement software to fund managers in the UK. In 1991, he founded an agency in Switzerland to distribute Micropal products and in 1993 he wrote the first version of TAP. Justin founded StatPro in 1994.

CFO: Andrew Fabian

Andrew was appointed finance director in 2000. He was previously group financial controller at William Baird. Andrew is a chartered accountant and qualified corporate treasurer.

Managing Director: Dario Cintioli

Dario joined StatPro in 2003 following StatPro’s investment in RiskMap. Dario was the original creator of StatPro Risk Management. Before establishing RiskMap, Dario spent 10 years in leading Italian financial institutions, as head of interest rate derivatives and head of quantitative analysis. Today Dario runs the group executive board and is responsible for all StatPro’s products including software and data services.

Non-executive Chairman: Rory Curran

Rory joined StatPro in November 2016 as a non-executive director and became chairman in November 2017. He was co-founder and executive chairman of 1st Software, which was sold in 2006. Rory left 1st Software in 2008 and has since been a director and investor in a number of technology companies. He is currently a non-executive director of Andromeda Enterprises (trading as Ecodesk), a cloud-based technology business.

Principal shareholders (as at 17 December 2018)

(%)

Liontrust Asset Management

21.8

Herald Investment Management

11.7

Justin MBT Wheatley

10.4

Stichting Bewaarder GFC (Depositary of Gran Fondo Capital)

9.5

Chelverton Asset Management

5.1

Cannacord Genuity Group

5.0

Mark C Adorian

4.8

AXA Framlington

3.9

Companies named in this report

Brady (LON:BRY), Envestnet (NYSE:ENV), FactSet (NYSE:FDS), First Derivatives (LON:FDP), Gresham Technologies (LON:GHT), GBST (ASX:GBT), Iress (ASX:IRE), Linedata (EPA:LIN), Microgen (LON: MCGN), MSCI (NYSE:MSCI), SimCorp (CPH:SIM), SS&C (NASDAQ:SSNC)


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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 Edison analyst 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.

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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.

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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

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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 (nor will such persons be able to purchase shares in the placing).

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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 Edison analyst 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 Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

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