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Play by the rules with StatPro

As asset managers face pricing and regulatory pressure, StatPro has enjoyed heightened demand for its cloud-based portfolio analysis tools
March 22, 2018

Global assets under management are set to soar from $84.9 trillion (£60.4 trillion) in 2016 to $145 trillion by 2025, according to PwC. But to capitalise on this burgeoning opportunity, investment managers must survive intensifying pressure on fees and profit margins, as cheap passive funds drive competition. Asset managers also face the expense of complying with new regulations: Mifid II, effective from January 2018, requires improved reporting practices with the unbundling of research costs. Amid such challenges, technology plays a vital role in streamlining operations, offering greater transparency around pricing and, ultimately, boosting competitive advantage.

IC TIP: Buy at 177p
Tip style
Speculative
Risk rating
High
Timescale
Long Term
Bull points

Excellent sales momentum
Strong recurring revenues
Good value vs peers
Helpful regulatory landscape

Bear points

Statutory losses
Higher net debt

Enter StatPro (SOG) – a provider of cloud-based portfolio analysis and asset pricing services, which helps managers and fund administrators to enhance client service, comply with rules and reduce costs. The company may be a small fish in the UK’s expanding ‘fintech’ pond, but, propelled by regulatory tailwinds, strong forecast earnings growth and expected synergies from a “transformative” acquisition last year, its shares look ripe for a re-rating. Particularly in the wake of Temenos’s (SW:TMN) £1.4bn bid for software peer Fidessa (FDSA).

Following a period of integration, the benefits of StatPro's acquisition of Delta in May last year for €13m (£11m), phased over three years, should soon shine through. Delta was the risk and performance analytics division of UBS (SW:UBSG) with a focus on fixed income attribution. This significantly enhances StatPro’s flagship analytics platform, Revolution, which accounted for nearly half last year's sales. During 2017 organic sales growth for the business was an impressive 11 per cent, helped by rising orders from existing clients.

A £9.3m contribution from acquisitions lifted overall group revenue by 31 per cent last year, while cash profits rose from £5m to £7m. Meanwhile, statutory pre-tax losses narrowed significantly from £10.1m to £3.4m, and analysts expect profits in 2018. (The profit shown in our table reflects adjusted, non-statutory figures.)

The 'stickiness' of StatPro customers is a key attraction for investors. Broker Panmure Gordon estimates that the ratio of the lifetime value (LTV) of each customer compared with the cost of acquiring a customer (CAC) – a popular measure of business and brand quality for software-as-a-service companies – is a very healthy 7.8 times.  Meanwhile, based on an annual run rate, total recurring revenues climbed by a considerable 35 per cent to £53m last year, bringing greater earnings visibility.

In 2019, StatPro will reorganise into three divisions to drive growth and to provide greater operational clarity. 

The Delta acquisition meant net debt doubled last year to £20.2m. That said, comfort can be taken from a 64 per cent rise in net operating cash flow to £9.3m, which was 16 per cent ahead of Panmure’s expectations.

STATPRO (SOG)   
ORD PRICE:177pMARKET VALUE:£116m
TOUCH:175-178p12-MONTH HIGH:188pLOW: 86p
FW DIVIDEND YIELD:1.6%FW PE RATIO:19
NET ASSET VALUE:44p*NET DEBT:69%
Year to 31 DecTurnover (£m)Pre-tax profit (£m)**Earnings per share (p)**Dividend per share (p)
201530.22.42.62.9
201637.52.73.42.9
201749.33.45.72.9
2018**56.95.77.42.9
2019**60.47.09.22.9
% change+6+23+24 
Normal market size:1,000   
Matched bargain trading    
Beta:0.83   
*Includes intangible assets of £64.8m, or 99p per share**Panmure Gordon forecasts, adjusted PTP and EPS figures