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StatPro Group — Broadening managed-services capabilities for risk

StatPro Group — Broadening managed-services capabilities for risk

StatPro has acquired the regulatory risk services bureau from ODDO BHF for an undisclosed sum. The acquisition significantly broadens the group’s managed-services capabilities in risk and creates cross-selling opportunities. Our EPS rises by 3% in FY18 and FY19; we believe the deal demonstrates how StatPro can add value for shareholders through bolt-on acquisitions. Given the busy M&A backdrop in financial software and the significant valuation disparity between StatPro and its US-listed financial software peers, we continue to see strong upside potential in the shares.

Analyst avatar placeholder

Written by

StatPro Group

Broadening managed-services capabilities for risk

Acquisition

Software & comp services

5 July 2018

Price

172.00p

Market cap

£113m

Net debt (£m) at 31 December 2017

20.2

Shares in issue

65.6m

Free float

82%

Code

SOG

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.4)

5.9

45.2

Rel (local)

(2.4)

(1.6)

40.0

52-week high/low

186.50p

114.0p

Business description

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

Next events

Interim results

1 August

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 has acquired the regulatory risk services bureau from ODDO BHF for an undisclosed sum. The acquisition significantly broadens the group’s managed-services capabilities in risk and creates cross-selling opportunities. Our EPS rises by 3% in FY18 and FY19; we believe the deal demonstrates how StatPro can add value for shareholders through bolt-on acquisitions. Given the busy M&A backdrop in financial software and the significant valuation disparity between StatPro and its US-listed financial software peers, we continue to see strong upside potential in the shares.

Year
end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/16

37.5

2.7

3.3

2.9

51.4

1.7

12/17

49.3

3.4

5.9

2.9

28.9

1.7

12/18e

57.3

5.4

7.0

2.9

24.7

1.7

12/19e

60.1

6.4

8.0

2.9

21.5

1.7

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

Acquisition of regulatory risk services bureau

The acquisition of the regulatory risk services bureau from ODDO BHF adds a full managed service for regulatory risk reporting capability, and StatPro will transition the clients from a legacy technology to the Revolution platform. It also adds 10 new asset management and fund administration clients to StatPro's client base in Germany and Luxembourg. The service will be marketed throughout the EU.

Divisional CEO appointed for Source: StatPro

In March StatPro announced it was introducing a new corporate structure that will be effective from 2019: Revolution (analytics), Source: StatPro (data services) and Infovest (integration services). StatPro has announced the appointment of Gordon Bloor, who has a wealth of expertise and extensive background in market data business development, to head the group’s Source: StatPro division. StatPro has significant data IP that has not been effectively commercialised due to lack of resources, and we view this appointment as a very positive step.

Forecast changes: FY19 EPS rise by 3%

We have incorporated the acquisition into our forecasts and have assumed a cost of £1.7m, or c 7x EBITDA. Group revenue and EPS both rise by c 3% in each of FY19 and FY20. We now forecast the group to end FY18 with net debt of £22.7m (previously £21.0m), which falls to £20.6m at end FY19 (£19.7m).

Valuation: Highly scalable cloud computing upside

StatPro’s stock trades on c 25x our increased FY18 EPS, which falls to c 21x in FY19 and to c 19x in FY20. Alternatively, the shares trade on c 2.3x FY19 EV/sales, around half of the level of StatPro’s larger US peers and well below half of US-based pure software as a service (SaaS) companies. When incorporating 10-year organic revenue growth of c 3.8%, a terminal growth of 2%, a long-term margin target of 24.0% and a WACC of 9%, our DCF model values the shares at 223p (previously 220p), c 31% above the current share price.

Acquisition of regulatory risk services bureau from ODDO BHF

StatPro has acquired ODDO BHF’s regulatory risk services bureau, for an undisclosed cash sum. The acquisition adds 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. To this effect the unit uses a legacy technology that will transition to the StatPro Revolution platform over the next six months.

StatPro’s clients have the option of taking either the SaaS option or using StatPro's new managed service. However, to use the SaaS option, clients require headcount to operate the software and it is typically more cost effective for small and medium-sized institutions to outsource this function to specialists (eg, fund administrators or StatPro) to focus on analysis and trade decision making and execution.

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. Once the software replacement is completed, StatPro plans to expand the service to other regions. StatPro will take on the employees of ODDO BHF risk services in Frankfurt, where they will be integrated with StatPro's existing operations and StatPro plans to double the size of the unit to six to eight people.

ODDO BHF risk services has annualised recurring revenues of approximately €1.7m and StatPro expects annual revenue levels for the acquired service to remain broadly similar for 2018. It will incorporate ODDO BHF Risk Service revenues from 1 July 2018 and StatPro says the acquisition is expected to be earnings enhancing in FY19.

Appointment of divisional CEO at Source: StatPro

From 1 January 2019, StatPro will be structured into three divisions: Revolution (analytics), Source: StatPro (data services) and Infovest (integration services). 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.

Source: StatPro provides a sophisticated pricing service for a wide range of assets and will contain StatPro's data revenues from market data managed services, evaluated bond prices, index services, yield-curves and complex asset pricing.

The interesting aspect about Source: StatPro is that it has significant data IP that has not been effectively commercialised due to lack of resources, as the group has been focused on its cloud transitioning. The initial focus is on the following areas:

■

Evaluated bond prices

■

Index services

•

Managing index data for customers, whereby customers pay the licence to the index firms, but StatPro manages the data

•

Freedom index, which is a series of indices owned by StatPro that correlate closely to the major international benchmarks of the UK, US, Australia and South Africa

■

Yield curves; a major strength of the acquired Delta business

■

Complex asset prices; StatPro offers modelled prices on complex illiquid instruments such as collateralised debt obligations (CDOs).

Forecast changes: Revenue and EPS move up by c 3%

We have incorporated the acquisition into our forecasts and have assumed a purchase price of £1.7m in cash, or c 7x EBITDA, in line with the multiple paid for UBS Delta. We forecast revenues from the acquisition of £0.8m for six months in FY18, rising to £1.6m in FY19 and £1.7m in FY20. Consequently, group revenue rises by 1.3% in FY18 and 2.8% in FY19 and FY20. We have edged up our net interest forecasts for the higher net debt levels and EPS is broadly unchanged in FY18 at 7.0p, while rising by 3% in each of FY19 and FY20 to 8.0p and 9.1p respectively. We now forecast the group to end FY18 with net debt of £22.7m (previously £21.0m), which falls to £20.6m at end FY19 (£19.7m).

Exhibit 1: Forecast changes

 £000s

2018e

Change

2019e

Change

2020e

Change

Old

New

(%)

Old

New

(%)

Old

New

(%)

 Revenues

Traditional software rental

17,580

17,580

0.0

15,580

15,580

0.0

13,580

13,580

0.0

StatPro Revolution

32,708

33,459

2.3

36,440

38,054

4.4

40,821

42,549

4.2

Data

4,151

4,151

0.0

4,359

4,359

0.0

4,555

4,555

0.0

Professional services

2,060

2,060

0.0

2,102

2,102

0.0

2,144

2,144

0.0

Group revenue

56,500

57,251

1.3

58,480

60,095

2.8

61,100

62,828

2.8

Growth (%)

14.5

16.0

3.5

5.0

4.5

4.5

Opex (before devt costs depn)

(48,771)

(49,446)

1.4

(49,835)

(51,230)

2.8

(51,435)

(52,879)

2.8

Capitalisation of dev costs (net)

938

938

0.0

610

647

6.1

485

506

4.4

Adjusted EBITDA

8,666

8,743

0.9

9,255

9,511

2.8

10,149

10,455

3.0

Depreciation

(1,900)

(1,925)

1.3

(1,850)

(1,869)

1.0

(1,800)

(1,813)

0.7

Adjusted operating profit

6,766

6,818

0.8

7,405

7,643

3.2

8,349

8,642

3.5

Operating margin (%)

12.0

11.9

(0.6)

12.7

12.7

0.4

13.7

13.8

0.7

Growth (%)

34.5

35.5

2.9

9.4

12.1

28.2

12.8

13.1

2.5

Net interest

(1,396)

(1,439)

3.0

(1,221)

(1,264)

3.5

(1,071)

(1,114)

4.0

Profit before tax (norm)

5,370

5,379

0.2

6,184

6,379

3.2

7,278

7,528

3.4

Amortisation of acquired intangibles

(3,243)

(3,243)

0.0

(3,243)

(3,243)

0.0

(3,243)

(3,243)

0.0

Share based payments

(650)

(650)

0.0

(675)

(675)

0.0

(700)

(700)

0.0

Profit before tax

1,477

1,486

0.6

2,266

2,461

8.6

3,335

3,585

7.5

Taxation

(752)

(753)

0.2

(1,051)

(1,084)

3.2

(1,456)

(1,506)

3.4

Minority interest

(40)

(40)

0.0

0

0

0.0

0

0

0.0

Net income

685

693

1.1

1,215

1,377

13.3

1,880

2,080

10.6

Adjusted EPS (p)

7.0

7.0

0.2

7.8

8.0

3.2

8.8

9.1

3.4

P/E - Adjusted EPS (p)

24.7

21.5

18.9

Source: Edison Investment Research


Exhibit 2: Financial summary

£'000s

2015

2016

2017

2018e

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

30,187

37,545

49,337

57,251

60,095

62,828

Cost of Sales

0

0

0

0

0

0

Gross Profit

30,187

37,545

49,337

57,251

60,095

62,828

EBITDA

 

 

4,044

5,104

6,951

8,743

9,511

10,455

Adjusted Operating Profit

 

 

2,852

3,461

5,030

6,818

7,643

8,642

Amortisation of acquired intangibles

(32)

(1,060)

(2,243)

(3,243)

(3,243)

(3,243)

Exceptionals

0

(11,378)

(3,934)

0

0

0

Share based payments

(121)

(361)

(626)

(650)

(675)

(700)

Operating Profit

2,699

(9,338)

(1,773)

2,925

3,725

4,699

Net Interest

(290)

(786)

(1,585)

(1,439)

(1,264)

(1,114)

Profit Before Tax (norm)

 

 

2,562

2,675

3,445

5,379

6,379

7,528

Profit Before Tax (FRS 3)

 

 

2,409

(10,124)

(3,358)

1,486

2,461

3,585

Tax

(788)

(489)

537

(753)

(1,084)

(1,506)

Profit After Tax (norm)

1,774

2,843

4,592

4,626

5,295

6,023

Profit After Tax (FRS 3)

1,621

(10,613)

(2,821)

733

1,377

2,080

Minority interests

0

(94)

(131)

(40)

0

0

Net income (norm)

1,774

2,186

3,851

4,586

5,295

6,023

Net income (statutory)

1,621

(10,707)

(2,952)

693

1,377

2,080

Average Number of Shares Outstanding (m)

67.6

65.3

64.8

65.7

66.0

66.3

EPS - normalised (p)

 

 

2.6

3.3

5.9

7.0

8.0

9.1

EPS - FRS 3 (p)

 

 

2.4

(16.4)

(4.6)

1.1

2.1

3.1

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 (%)

13.4

13.6

14.1

15.3

15.8

16.6

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

9.4

9.2

10.2

11.9

12.7

13.8

BALANCE SHEET

Fixed Assets

 

 

51,857

59,088

70,864

68,974

67,106

65,235

Intangible Assets

48,613

55,696

64,793

63,282

61,480

59,537

Tangible Assets

2,233

2,742

3,303

2,924

2,858

2,930

Other assets

1,011

650

2,768

2,768

2,768

2,768

Current Assets

 

 

10,665

19,081

20,717

20,190

22,501

24,765

Stocks

0

0

0

0

0

0

Debtors

8,462

14,725

16,406

19,038

19,983

20,892

Cash

2,203

4,356

4,311

1,153

2,518

3,873

Current Liabilities

 

 

(19,778)

(35,686)

(40,011)

(43,264)

(45,458)

(47,662)

Creditors

(19,660)

(27,227)

(32,560)

(35,813)

(38,007)

(40,211)

Short term borrowings

(118)

(8,459)

(7,451)

(7,451)

(7,451)

(7,451)

Long Term Liabilities

 

 

(1,227)

(9,897)

(22,416)

(21,717)

(18,790)

(15,864)

Long term borrowings

(801)

(5,961)

(17,076)

(16,377)

(15,677)

(14,978)

Other long term liabilities

(426)

(3,936)

(5,340)

(5,340)

(3,113)

(886)

Net Assets

 

 

41,517

32,586

29,154

24,184

25,358

26,474

CASH FLOW

Operating Cash Flow

 

 

6,548

7,454

10,676

14,659

15,782

17,170

Net Interest

(84)

(500)

(1,227)

(1,439)

(1,264)

(1,114)

Tax

(832)

(1,294)

(144)

(1,253)

(699)

(1,021)

Capex

(4,999)

(6,445)

(7,213)

(8,114)

(8,419)

(8,793)

Acquisitions/disposals

0

(4,786)

(10,269)

(4,431)

(1,429)

(2,274)

Equity financing

64

(2,079)

926

0

0

0

Dividends

(1,960)

(1,877)

(2,012)

(1,879)

(1,907)

(1,915)

Net Cash Flow

(1,263)

(9,527)

(9,263)

(2,458)

2,064

2,055

Opening net debt/(cash)

 

 

(2,680)

(1,283)

10,065

20,217

22,675

20,610

Other

(134)

(1,821)

(889)

0

0

0

Closing net debt/(cash)

 

 

(1,283)

10,065

20,217

22,675

20,610

18,556

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by StatPro Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “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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Schumannstrasse 34b

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United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by StatPro Group and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. 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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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: TMT

Boku — Strong growth continues in H1

Boku’s H1 trading update confirms the company continues to see strong growth in total processed value (TPV) and revenues. Positive EBITDA for H118 supports our forecast for Boku to report its first full year of EBITDA profitability in FY18. The company anticipates meeting earnings expectations for FY18. We see the potential for revenue upside in FY18 to be reinvested in longer-term growth opportunities, providing support to the share price. We maintain our forecasts pending interims in September.

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