6 October 2016
StatPro Group PLC
‘John’s Investment Chronicle’ buys StatPro holding
John Rosier, web-based investor and former head of UK equities at Fleming Investment Management, has bought an initial holding in StatPro and shared his views with subscribers to JohnsInvestmentChronicle.com
Rosier’s initial comments on the purchase:
“Regular readers of JohnsInvestmentChronicle will know that I have used Statpro Revolution to measure the risk in the JIC Portfolio as well as recording the historic volatility, Sharp Ratio and other stats of the Portfolio.
Over the last 8 years or so Statpro has invested in the development of its cloud based risk measurement system, Statpro Revolution. Yesterday I attended a presentation at which the company launched its new cloud based performance measurement system, Revolution Performance. There were roughly 150 performance measurement analysts from many of the top investment management companies. It looks an incredibly powerful and flexible tool which should massively simplify performance measurement and improve productivity.
There was a ringing endorsement during the presentation from the head of performance measurement from National Australian Bank. It has migrated 8 of its clients so far and intends to complete the migration of all its clients by mid 2017.”
Rosier’s investment case:
The investment case is based on:
- Having invested a significant sum over a number of years it has reached the inflection point where R&D cap-ex levels out and revenue accelerates.
- Total recurring revenues are forecast to grow 18% to £31.7m this year.
- Gross margins are high, as expected from a software company. Net margins should now expand due to revenue growth exceeding costs growth principally due to the inflection point mentioned earlier.
- Cash flow has been directed towards investment in the cloud-based product; going forward it should start to generate substantial free cash flow
- At first sight the valuation might appear expensive. Following the latest upgrades to earnings, only yesterday, the company is valued at 37x 2016 earnings, falling to 28.6x 2017 and according to ShareScope 21.3x 2018. So growth of 30% this year, followed by 24% then 23%. It is on a prospective dividend yield of 2.6%, which is not to be sniffed at. I expect however, that there will be further upgrades to earnings and cash flow as it gains new clients and recurring revenue from its cloud-based products increases.
- On another valuation metric, enterprise value/sales, it is priced much lower than other software-based businesses: Its forecast 2.1x, compares with 5.6x at Craneware, 2.6x at Fidessa and 3.0x at Gresham.
Justin Wheatley, CEO and founder of the business in 1994, owns 11.8%. Other directors own a further 6.5%. Major shareholders include Liontrust Asset Management with 21.9%, Herald Investment trust with 11.6% and AXA Framlington with 9.6%.
On Stockopedia it has a StockRank of 62, comprising Quality 37, Value 40 and Momentum 97. Over the last year, earnings expectations have been upgraded; in October last year forecasts for earnings per share for 2016 was 2.85p and after yesterday’s increase now stand at 3.4p. I expect further upgrades over the coming year. I also suspect that the Quality score will rise as margins, return on capital and cash flow improve.
I think that there is scope for considerable growth in revenue, profits and cash flow. Despite the recent performance, I do not think this is being fully appreciated by the market, leaving scope for decent share price appreciation. I have seen a price target based on sector comparatives of 156p which I don’t think is outlandish. Being a small company there is inevitably quite a wide bid/offer spread and liquidity in the stock is quite tight. I have dipped a toe in the water today, buying just 0.3% today, with the intention of adding further as I become more comfortable with the story. If I’m correct this should be a multi-year growth story. Happy Buyer!
About John Rosier:
John enjoyed the first 14 years of his career at Fleming Investment Management, initially as an analyst and then as a UK portfolio manager; in 1997 he was appointed Head of UK Equities. He was a director at Henderson Global Investors from 1998 until 2004, before moving to the West End and working for two hedge funds. His investment career at Flemings and Henderson was focused on managing UK equity portfolios for corporate and local authority final salary defined benefit pension schemes as well as the reserve fund for the NSPCC.
|StatPro Group plc|
|Neil Smyth, Marketing Director||+44 (0) 20 8410 9876|
|Andrew Fabian, Finance Director|
StatPro is a global provider of award winning portfolio analytics solutions for the investment community. The Group’s cloud-based platform provides vital analysis of portfolio performance, attribution, risk and compliance. This multi-asset class analytics platform helps StatPro’s clients increase assets under management, improve client service, meet tough regulations and reduce costs.
The Group’s integrated and global data coverage includes over 3.2 million securities such as equities, bonds, mutual funds, FX rates, futures, options, OTCs, sector classifications and much else besides. StatPro also covers most families of benchmarks including MSCI, FTSE, Russell, NASDAQ and the open source Freedom Index.
StatPro has grown its Annualised Recurring Revenue from less than £1 million in 1999 to around £36 million at the end of June 2016. The Group has operations in Europe, North America, South Africa, Asia and Australia, with hundreds of clients in 38 countries around the world. Approximately 80% of recurring revenues are generated outside the UK. StatPro Group plc shares are listed on AIM.