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Philosophy Shares Small Cap Technical Picks

Pact Group’s stock price has risen as a result of a 100% dividend increase.

Investment thesis

  • Strong market share in Australia, with a strong influence in Asia. As a result, it offers appealing exposure to the growth of both developed and emerging markets.
  • The corporation’s newly appointed CEO brings a fresh perspective on company strategy, which can restructure the company for strong volume growth.
  • Based on our projections, the valuation is reasonable.
  • Going forwards, management appears to be less centred on acquired growth, implying that the Company is less likely to make a value-destroying acquisition.
  • The reintroduction of the dividend is a positive sign that management is optimistic about future earnings growth.
  • In an environmentally friendly market, focusing on sustainable packaging.

Key Risks

The following are the key challenges to the investment thesis:

  • Increased competitive pressures, resulting in further margin erosion.
  • Cost pressures on inputs that the corporation would be unable to pass on to users.
  • A worsening in Australia’s and Asia’s economic conditions.
  • The risk of emerging markets.
  • Poor acquisitions or failure to meet synergy targets as PGH shifts away from packaging for food, dairy, and beverage clients and towards more high-growth sectors such as healthcare.
  • Negative currency movements (purchased raw materials in U.S. dollars)

Highlights of key FY21 results

  • Revenue fell -3 percent to $1,762 million, while underlying EBITDA increased by 4% to $315 million, underlying EBIT increased by 10% to $183 million (EBIT margin increased by 120 basis points to 10.4 percent), and underlying NPAT increased by 28% to $94 million. The positive motivational drivers of group EBIT growth over the year were: margin improvement (+$10m) as a result of disciplined raw material input cost management; volume growth in Packaging & Sustainability (+$9m); and volume increase in Materials Handling & Pooling (+$15m).
  • As a result of strong operating performance and working capital management, cash flow performance improved, with free cashflow increasing by +44 percent to $104 million. 
  • Balance sheet gearing decreased slightly year on year, working to improve to 2.4x (within the targeted range of 3.0x) from 2.6x. The company has $317 million in liquid assets (undrawn debt capacity). 
  • Strong capital returns, with a +120bps increase in ROIC to 11.8 percent. The Board declared a final dividend of 6cps (65 percent franked), helping to bring the year’s total dividends to 11cps (vs 3cps in the pcp).

Company Description  

Pact Group Holdings Ltd (PGH) was established by Raphael Geminder in 2002 (Mr. Geminder remains a major shareholder with ~44% and is the brother in law of Anthony Pratt, Chairman of competitor Visy). Pact has operations throughout Australia, New Zealand and Asia and conceives, designs and manufactures packaging (plastic resin and steel) for many productsin the food (especially dairy and beverage), chemical, agricultural, industrial and other sectors. 

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Global stocks Shares

Domino’s Pizza is taking the next step of growth and has released its FY21 results.

Investment thesis

  • Potential for solid growth in Europe and Japan, with significant opportunities that the Company is well positioned to capitalise on.
  • DMP has a strong position in the market in all of its existing geographies.
  • DMP is ahead of the curve in terms of technology and innovative customer offerings.
  • Merger in Europe to increase top-line revenue.
  • A solid management team.
  • Aiming for higher margins (i.e. operating leverage benefits).

Key Risks

The following are the key challenges to the investment thesis:

  • Acquisition integrations are not proceeding as planned.
  • Failure to meet market expectations for sales and earnings growth.
  • Dietary concerns that compel customers to seek out healthier alternatives
  • Input and labour costs have risen.
  • Competition-related market pressures.
  • Key management personnel have left.
  • The corporate office must increase financial assistance to struggling franchisees.
  • Any additional negative media coverage, particularly regarding underpayment of wages at the franchisee level.
  • Any new concerns about store rollout (such as cannibalisation or demographics not supportive of new stores).
  • Commodity prices have risen as a result of Australia’s ongoing drought.

Highlights of key FY21 results

  • FY22 has begun on a strong footing, with 2,974 stores (including 26 opened this fiscal year) delivering +7.7 percent network sales growth (+2.7 percent on a Same Store basis)… With a two-year cumulative Same Store Sales growth of 13.7 percent, Domino’s is trying to demonstrate sustainable growth by retaining customers from the pandemic’s initial peaks.
  • The 3-5 Year Outlook for New Store Openings has increased to +9-12 percent (up from +7-9 percent),” with management stating that “a review of our modelling has increased our expectations for Benelux (+200 stores) and Japan (+500 stores), and now expects to operate 6,650 stores by 2033.
  • DMP reaffirms its 3-5 year Same Store Sales forecast of +3-6 percent.
  • The 3-5 year net capex outlook has been raised to $100-150 million (up from $60-100 million) as DMP assists franchisees with store expansions.
  • The Board has determined that it will increase its payout ratio from 70% to 80% in recognition of this new phase in Domino’s growth and the expected free cash flow.

Company Description  

Domino’s Pizza Enterprises Limited (DMP) operates retail food outlets. The Company offers franchises to the public and holds the franchise rights for the Domino’s brand and network in Australia, New Zealand, Europe and Japan. 

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Global stocks

Panasonic’s Faster Than Expected Recovery Led by Auto and Data Center Demand

Panasonic has implemented a huge restructuring several times, approximately for every 15 years, and recovered its profitability each time. On the other hand, we doubt Panasonic’s capability on strategic investment, as the company failed to address the changing environment in the global consumer electronics industry and consequently did not generate sufficient return from past investments. In fact, Panasonic’s revenue has been unchanged at around JPY 7 trillion-JPY 8 trillion, and its operating margin has ranged between 1% and 5% for more than two decades. 

Financial Strength 

Panasonic has a very strong financial position, with net cash of JPY 288 billion (USD 2.7 billion) at the end of March 2016, having improved its balance sheet from a net debt position of JPY 1 trillion (USD 9.5 billion) at the end of 2012. This improvement has been achieved through a combination of improved operating cash flow performance (the company produced an operating cash flow loss in 2012 but generated a combined JPY 1.80 trillion in operating cash flow over 2013-15), as well as sales of investments and property, plant, and equipment.

Panasonic’s June-quarter revenue was 29% up from the previous year exceeding our expectations. The automotive segment’s sales were 1.8 times as large as the previous year driving the revenue growth because of the lower base due to the pandemic. The appliance segment’s sales were 22% up from the previous year as demand for flat-panel TVs and digital cameras recovered. Revenue for the industrial solutions segment was 24% up from the previous year as a result of robust investment for semiconductors and data centers. Panasonic’s revenue and operating income forecast for fiscal 2021 to JPY 7.3 trillion and JPY 390 billion from JPY 7.15 trillion and JPY 360 billion, respectively. Our new operating income forecast is 51% up from the previous year, driven by automotive, connected solutions, and industrial solutions segments. 

Bulls Say’s 

  • Panasonic has plenty of “one-off” earnings and cash flow upside available through exiting unprofitable products.
  • If Panasonic can hit its fiscal 2019 corporate plan targets, it will generate earnings and cash flow growth that should support a higher valuation.
  • Panasonic’s leading position in electric vehicle batteries puts it in a very strong position in a potentially revolutionary technology.

Company Profile 

Panasonic is a conglomerate that has diversified from its consumer electronics roots. It has five main business units: appliances (air conditioners, refrigerators, laundry machines, and TVs); life solutions (LED lighting, housing systems, and solar panels; connected solutions (PCs, factory automations, and in-flight entertainment systems); automotive (infotainment systems and rechargeable batteries); and industrial solutions (electronic devices). After the crisis in 2012, former president Kazuhiro Tsuga has focused on shifting the business portfolio to increase the proportion of B2B businesses to mitigate the tough competition in consumer electronics products.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Philosophy Technical Picks Technology Stocks

Nanosonics Still Screens as Materially Overvalued

 as evidenced by penetration of over 75% in Australia and New Zealand and 40% in North America. Moreover, the device patent expires in 2025, leading to slower volume growth in the medium term. Moreover, the device patent expires in 2025, leading to slower volume growth in the medium term. In 2021 consumables contributed 63% of group revenue. 

Nanosonics primarily distributes via GE Healthcare, its partner across multiple geographies. We estimate consumables to roughly earn a gross margin of 85% and devices 65% by fiscal 2026. Outside of trophon, the company expects to launch a new product in flexible endoscope cleaning in 2023. Previously, management intimated the addressable market to be equivalent to trophon and there is greater awareness of the infection issue this product addresses. 

Financial Strength

Nanosonics is in a net cash position and free cash flow positive. The operating model does not require significant capital investment, with the key investments for growth stemming from ongoing R&D spending, building out a salesforce and working capital. Despite having 60-day terms from distribution partners, the current net investment in working capital runs at approximately 28% of revenue due to high inventory holding levels which average roughly 200 days in stock. phase. The company first posted a profit in fiscal 2016 and is yet to pay a dividend, nor do we expect it to in the future as it invests in underpenetrated markets and its pipeline product.

Our fair value for narrow-moat Nanosonics by 13% to AUD 3.50 following fiscal 2021 results. Roughly half of our upgrade is attributed to increasing consumable usage across the trophon installed base and the remainder due to a stronger USD. A clear highlight was second-half fiscal 2021 consumables revenue in North America, or NA, increasing 30% sequentially to AUD 33 million as ultrasound procedure volumes recovered. For the first time since fiscal 2016, new installations in NA increased year on year, with 2,490 trophon units added in fiscal 2021. 

While the second half added 1,360 new units in NA, the run-rate has significantly declined from 2,000 new installations in first-half fiscal 2017. Revenue in the region declined 1% sequentially to just AUD 3.6 million in the second half. Nanosonics is in a strong financial position with AUD 96 million in net cash at fiscal 2021 year-end. Nanosonics’ next major product, dubbed Coris, aims to automate flexible endoscope cleaning but has been delayed to calendar 2023. Details remain scant and we continue to expect uptake of Coris to mirror that of the trophon post-launch. This results in AUD 84 million in sales by fiscal 2031, or 23% of group revenue.

Bulls Say’s 

  • Nanosonics is the market leader in automated HLD of ultrasound probes with significant further market penetration potential in most regions.
  • Establishing its direct distribution model should increase the gross margins achieved by Nanosonics once it reaches critical mass.
  • The company has reached a pivotal point where higher margin consumables dominate the revenue stream. This revenue stream is also protected by patents and the installed trophon device base.

Company Profile 

Nanosonics is a single-product company and its trophon device provides high-level disinfection, or HLD, of ultrasound probes used in semi-critical procedures. The patented technology uses low temperature sonically activated hydrogen peroxide mist that is suitable for probes sensitive to damage. Automated HLD is increasingly being adopted as the standard of care globally as it is superior in preventing cross-infection across patients. Nanosonics’ revenue is made up of capital sales of trophon units, ongoing consumables sales, and service revenue. At June 2021, there were 26,750 trophon units installed globally. Market penetration rates range from over 75% in Australia and New Zealand, roughly 40% in the United States to low-single-digit penetration in EMEA and elsewhere in Asia-Pacific.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks Shares

International Still a Drag, but Other Segments Mostly Positive for Scotiabank in Fiscal Q3

. Its domestic operations are more concentrated in mortgages and auto lending. The international exposure gives the bank the potential for higher growth and return opportunities compared with peers, but it also exposes the bank to more risks.

The bank is in the middle of rationalizing its many back-end systems and improving efficiency bankwide.The bank is continuously focusing in digitalisation and has been spending the most on its technology and communication expenses. These efforts will ultimately pay off in the form of improved operating efficiency, customer engagement, and internal sales coordination. This leads us to believe that returns on tangible equity near 15% are sustainable over the longer term for the bank.

International Still a Drag, but Other Segments Mostly Positive for Scotiabank in Fiscal Q3

Bank of Nova Scotia reported decent fiscal third-quarter earnings. Adjusted earnings per share were CAD 2.01, representing solid year-over-year growth which is higher than last quarter’s EPS of CAD 1.90. Provisioning continues to be a major driver of improved earnings. Credit costs remained solid and provisioning was low during the quarter while the bank is still holding excess reserves for future credit losses

Revenue growth continued to be lackluster for Scotiabank, up only 1% year over year as the bank’s international segment remains under some pressure and fee growth for the global markets segment faced tough year over year comps. It is expected that the international fees to continue to recover as the economic picture is improving in essentially all of Scotia bank’s Pacific .

Financial Strength:

Bank of Nova Scotia holds strong overall financial health with net revenue of CAD 30729 million and net income of CAD 6582 million in the year 2020. Nova Scotia’s reported common equity Tier 1 ratio of 12.2% as of July 2021 which remains satisfactory. This is above the 11.5% goal that management has targeted and leaves the bank well positioned to absorb the upcoming rise in credit costs. With dividend payout ratios at manageable levels between 40% and 50%, we expect its capital generation will continue to provide growth in its capital position, leaving room for future bolt-on acquisitions, increased capital return to shareholders, or both

Bulls Say

  • The Canadian market remains attractive; the government has placed barriers to entry that protect high returns.
  • The international segment’s exposure to higher growth emerging markets in Latin America will offset Scotia bank’s slower growth in its home markets and offer a runway for higher growth and returns compared with peers.
  • Scotiabank has consistently been one of the most efficient bankwide operators, and its higher relative level of spending on technology should allow this to continue.

Company Profile

Bank of Nova Scotia is a global financial services provider. The bank has five business segments: Canadian banking, international banking, global wealth management, global banking and markets, and other. It offers a range of advice, products, and services, including personal and commercial banking, wealth management and private banking, corporate and investment banking, and capital markets. The bank’s international operations span numerous countries and are more concentrated in Central and South America

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Dividend Stocks

Excellent Third-Quarter Results for Bank of Montreal; Raising Our FVE to CAD 130/USD 103

BMO has a well-established Canadian banking presence, an established U.S. retail operation in the Midwest, and growing commercial and capital markets capabilities. BMO has the second-largest amount of assets under management among the Canadian banks, with the largest proportion of its revenue coming from wealth-management. Additionally, BMO has the lowest relative exposure to residential mortgage loans among its peers

Bank of Montreal has taken a step up in 2021, improving operating efficiency while growing fees and managing its interest rate exposure. We expect that the bank will remain a more efficient operation going forward.

Excellent Third-Quarter Results for Bank of Montreal; Raising Our FVE to CAD 130/USD 103

Bank of Montreal reported excellent fiscal third-quarter earnings, with EPS of CAD 3.44 representing solid year-over-year growth compared with adjusted EPS of CAD 1.85 last year and higher than last quarter’s EPS of CAD 3.13. Provisioning continues to be a major driver of improved earnings, coming in at a net benefit of CAD 70 million.Bank of Montreal’s fees continue to come in better than expected. 

Net income continued to be exceptional in the bank’s capital markets segment during the third quarter, tracking above CAD 500 million yet again as investment banking remained healthy while global markets-related revenue came back down a bit. The wealth segment also continued to report excellent results, with net income up another 15% sequentially, although growth in assets under management is starting to slow, up less than 1% sequentially. The more traditional banking segments at Bank of Montreal have continued to do fine, with Canadian P&C essentially fully recovered and back to pre pandemic revenue levels while U.S. P&C is feeling a bit more pressure from a CAD perspective due to shifting exchange rates

Credit costs remained solid. Provisioning continued to decline during the third quarter while the bank continues to hold excess reserves for future credit losses. Formations of impaired loans remained subdued, and overall gross impaired loans declined once again. Higher-risk loans due to the COVID-19 pandemic remained at just under 5% of total loans, which is very manageable.

 After decreasing our credit cost projections for 2021, decreasing certain expense line items, increasing some noninterest income items, and making some additional improvements to our balance sheet growth and net interest margin outlook, we have increased our fair value estimate to CAD 130/$103 per share from CAD 115/$94

Bulls Say

  • Growth and opportunities in the bank’s U.S. markets will outweigh any slowdown in its native Canada as U.S. subsidiaries gain market share.
  • Compared with its peers, BMO has a lower exposure to the Canadian housing market.
  • BMO’s presence in the Canadian ETF market should pay off as passive investment options gain share in Canada over the next decade.

Company Profile

Bank of Montreal is a diversified financial-services provider based in North America, operating four business segments: Canadian personal and commercial banking, U.S. P&C banking, wealth management, and capital markets. The bank’s operations are primarily in Canada, with a material portion also in the U.S.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Dividend Stocks

Medtronic Begins Fiscal 2022 in Solid Fashion; No Change to Our Fair Value Estimate

For the year 2020 the firms revenue was USD 30117 million and EBIT was USD 5210 Million. We’re holding steady on our fair value estimate as these early results are generally consistent with our full year projections. 

Medtronic’s organic quarterly revenue growth of 19% year over year was fairly broad based, marked by share gains in cardiac rhythm management and surgical innovations. The diabetes franchise remains the weak link as competitors have launched new products, while Medtronic is still navigating the domestic regulatory pathway for its next-gen 780g insulin pump and Synergy sensor. In the meantime, Tandem and Insulet both posted strong second-quarter pump growth of 58% and 16%, respectively. Medtronic’s typical fiscal quarter timing, includes July, which provides a better peek into however the rise of the Delta variant has damped procedure volume growth. 

The firms Spyral HTN On-Med pivotal study results, which may be released in November will be very interesting herein the firm anticipates an interim look at the data in the next couple of months. If the findings are as favorable as seen in the earlier feasibility trial, then we’re optimistic Medtronic’s renal denervation platform could be launched by early 2023. We project this market to reach $4.2 billion by 2030, and Medtronic continues to enjoy a two- to four-year head start over competitors. 

Company Profile

One of the largest medical device companies, Medtronic develops and manufactures therapeutic medical devices for chronic diseases. Its portfolio includes pacemakers, defibrillators, heart valves, stents, insulin pumps, spinal fixation devices, neurovascular products, advanced energy, and surgical tools. The company markets its products to healthcare institutions and physicians in the United States and overseas. Foreign sales account for almost 50% of the company’s total sales.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks Shares

Traffic is still a problem, but there is more than adequate money to get through another year of hard times.

Investment thesis

  • Recent takeover offers that have been rejected are currently supporting the share price.
  • Sydney International Airport is an appealing asset with a long-term lease, but earnings are currently being impacted by the pandemic.
  • Long-term growth in international tourism and domestic travel is expected post-Covid.
  • Prior to the pandemic, SYD delivered a consistent and growing dividend stream, which is expected to continue post-Covid.
  • New development initiatives (expand capacity & improve passenger experience).
  • Exposure to a falling dollar (cheaper to visit Australia).
  • Earnings can be increased by diversifying into hotels.
  • Potential new markets, such as India and new emerging markets, could drive growth.

Key Risks

The following are the key challenges to the investment thesis:

Bond yields (viewed as a bond proxy, rising bond yields will have a negative impact on SYD’s valuation)

  • A decline in Australian tourism.
  • A global disaster that reduces international travel.
  • Distribution growth, or lack thereof, disappoints.
  • Cost constraints / operational disruptions
  • International airlines are lowering their exposure to Australia.
  • Long-term competition from Western Sydney Airport.

Highlights of key FY21 results

  • Revenue of $341.6 million was -33.2 percent lower than the pcp. SYD had 6.0 million passengers, a -36.4 percent decrease, with domestic and global passenger numbers down by 91.0 percent and -3.1 percent, respectively.
  • Operating expenses were $74.2 million lower, a -7.8 percent decrease.
  • EBITDA was down -29.8 percent to $210.8 million.
  • SYD revealed a $97.4 million loss after income taxes. In terms of Covid-19 impacts, SYD recognised abatements and expected credit loss in the form of $77.0 million in rental abatements and $24.5 million in doubtful debt provision, and government assistance of $2.6 million in JobKeeper payments was recognised as an offset to employee benefits expense up to March 2021.
  • As of 30 June, SYD had a strong balance sheet with $2.9 billion in liquidity ($0.5 billion in available cash and $2.4 billion in undrawn bank debt facilities). On the conference call, management stated that SYD “continues to expect to remain compliant with its covenant requirements.” SYD’s credit rating remained unchanged, at BBB+/Baa1 by S&P/ Moody’s, with a negative outlook. Net debt fell to $7.5 billion from $9.1 billion in the first half of the year, with a cashflow cover ratio of 2.0x (down from 2.4x in the first half of the year) and a nett debt/EBITDA ratio of 14.0x (versus 9.3x at 1H20).

Company Description 

Sydney Airport (SYD) operates the Sydney International Airport (Kingsford Smith). The company develops and maintains the airport infrastructure and leases terminal space to airlines and retailers. The ASX listed stock consists of Sydney Airport Limited (SAL) and Sydney Airport Trust (SAT1). Shares and units in the Group are stapled.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Technology Stocks

IRE has agreed to grant EQT for exclusive due diligence

Investment Thesis
Since 24th February 2021 IRESS’s share price appreciated and traded on less attractive trading multiples and valuations.
No Doubt in quality of IRE’s quality with strong Team Management and its upside trade captured share price and trading multiples and hence its trading range bound.
Growing superannuation/pension resources bodes well for IRE’s clients, which bodes well for IRE’s product demand.
Financial market participants in Australia, United Kingdom and South Africa used use product of IRE widely. In the ANZ Wealth Management market for example, the expanding dynamic of practise self-licensing, strong client retention and increased demand for integrated solutions are major revenue drivers. More than 90% of revenue is recurring.
Strong momentum in ANZ Wealth Management’s core growth markets, including as South Africa and the United Kingdom.
The introduction of a new product provides prospects for expansion.
A strong financial position and a qualified management team.

Key Risks
Subscriptions are down due to dwindling demand from the sell-side and buy-side, as well as financial planners.
Competitive platforms/offers (new disruptive technology); competition’s better features and innovation.
Risks associated with the system, technology, and software.
Clients and their requirements are being impacted by regulatory and structural developments in the financial sector.
Deterioration in the equity and debt markets, which could have an adverse effect on terminal demand.
The company’s Canadian sector continues to deteriorate.

Key Highlight 2020

IRESS’s Revenue was up +1 to $298.7 million on a pro forma basis, as recurring sales now accounts for 90% of overall revenue.
IRESS’s Pro forma segment profit of $77.2 million and pro forma EPS of 14.2 cents were up 3% and 6%, respectively, and were in line with full-year guidance; driven by growth in Trading and Market Data, a full-year contribution from OneVue, and good progress with new client implementations across Super, Private Wealth, and in the UK, offset by expected revenue declines in the Australian financial services sector.
The cash conversion rate was 90%. (improved from 86 percent in FY20). The Pro forma ROIC was kept at 9% by IRE.
IRESS Board Declared Interim Dividend at 16cps, 80% franked.

Company Profile

Iress is an Australian financial software provider that specialises in the financial markets and wealth management sectors. Its mature financial markets business comprises around 25% of group EBITDA and has dominated the Australian market for around 20 years because of its leading order management platform. The wealth management software business comprises around a third of group EBITDA, and is the main contributor of group earnings growth, with superannuation and enterprise lending software comprising the remainder.

(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Technology Stocks

IRE has agreed to grant EQT for exclusive due diligence

fintech icon on abstract financial technology background represent Blockchain and Fintech Investment Financial Internet Technology Concept.

Investment Thesis 

  • Since 24th February 2021 IRESS’s share price appreciated and traded on less attractive trading multiples and valuations.
  • No Doubt in quality of IRE’s quality with strong Team Management and its upside trade captured share price and trading multiples and hence its trading range bound.
  • Growing superannuation/pension resources bodes well for IRE’s clients, which bodes well for IRE’s product demand.
  • Financial market participants in Australia, United Kingdom and South Africa used use product of IRE widely. In the ANZ Wealth Management market for example, the expanding dynamic of practise self-licensing, strong client retention and increased demand for integrated solutions are major revenue drivers. More than 90% of revenue is recurring.
  • Strong momentum in ANZ Wealth Management’s core growth markets, including as South Africa and the United Kingdom.
  • The introduction of a new product provides prospects for expansion.
  • A strong financial position and a qualified management team.

Key Risks 

  • Subscriptions are down due to dwindling demand from the sell-side and buy-side, as well as financial planners.
  • Competitive platforms/offers (new disruptive technology); competition’s better features and innovation.
  • Risks associated with the system, technology, and software.
  • Clients and their requirements are being impacted by regulatory and structural developments in the financial sector.
  • Deterioration in the equity and debt markets, which could have an adverse effect on terminal demand.
  • The company’s Canadian sector continues to deteriorate.

Key Highlight 2020

  • IRESS’s Revenue was up +1 to $298.7 million on a pro forma basis, as recurring sales now accounts for 90% of overall revenue.
  • IRESS’s Pro forma segment profit of $77.2 million and pro forma EPS of 14.2 cents were up 3% and 6%, respectively, and were in line with full-year guidance; driven by growth in Trading and Market Data, a full-year contribution from OneVue, and good progress with new client implementations across Super, Private Wealth, and in the UK, offset by expected revenue declines in the Australian financial services sector.
  • The cash conversion rate was 90%. (improved from 86 percent in FY20). The Pro forma ROIC was kept at 9% by IRE.
  • IRESS Board Declared Interim Dividend at 16cps, 80% franked.

Company Profile 

Iress is an Australian financial software provider that specialises in the financial markets and wealth management sectors. Its mature financial markets business comprises around 25% of group EBITDA and has dominated the Australian market for around 20 years because of its leading order management platform. The wealth management software business comprises around a third of group EBITDA, and is the main contributor of group earnings growth, with superannuation and enterprise lending software comprising the remainder.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.