Overview: Praemium Ltd (“PPS”, “the Company”) is an Australian software company offering investment administration and financial planning technology platforms for clients in the financial services industry. The company operates in Australia, the UK, Jersey, and Hong Kong. PPS was founded in 2001 and listed on the ASX in 2006. The company currently serves more than 700 clients covering $80bn in assets. The Separately Managed Accounts Technology (SMA) is Australia’s market leader and one of the fastest-growing discretionary platforms in the UK.
Catalysts: PPS is in the transition to become a self-funding company and is debt-free. The company experienced historic revenue growth of ~12% p.a. over the past three years and operating cash flow has improved 225% y-o-y. One of its long-standing customers extended its contract for a further five years with a minimum contract value of $3m per year (FY14 Revenue ~18m). The company has launched a retail product targeting SMSF which may be a catalyst for long-term growth.
Hurdles: PPS has been historically reliant on external capital to finance operations and there is no guarantee existing income levels will be sufficient to support planned growth initiatives. The cost base expanded by 22% last FY largely driven by an increase in headcount. These large cost investments have absorbed revenue growth and there is no guarantee that these structural changes will result in increased margins. Praemium’s share register is relatively fragmented and could leave the Company open to takeovers below the fair value of its securities
Investment View: PPS offers profitable exposure to the wealth management software industry. We are attracted to its revenue growth trajectory and funding position. Cost investments across the business have been largely completed and PPS can now focus on maximising leverage in future operations. We issue a ‘speculative buy’ recommendation.
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