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StatPro Group PLC: THE INVESTMENT CASE

StatPro benefiting from Delta belter

The portfolio analytics platform operator has been shrewd in its acquisition policy and the purchase of Delta from UBS may just be the best acquisition yet
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INVESTMENT OVERVIEW: SOG The Big Picture
StatPro moved to the cloud before most of us had even heard of the concept

StatPro Group PLC (LON:SOG) has long augmented organic growth with a series of bolt-on acquisitions, but the purchase of Delta could be the best yet.

It's still early days for the acquisition in the spring of 2017 of Delta - the risk and performance analytics service it bought from UBS - but the signs are very good.

READ: StatPro finished 2017 strongly and is confident of further progress in 2018

"The acquisition and successful integration of Delta in May was the highlight of 2017. Delta has since increased sales and plans are in place to achieve functional parity for Delta within StatPro Revolution,” said Justin Wheatley, the group chief operating officer of StatPro.

The acquisition gave StatPro “scale” and significantly enhanced its product capabilities, with the portfolio analytics platform operator working hard on migrating Delta's unique functionality onto StatPro Revolution's platform.

With Delta joining the family, StatPro's analytics service will branch out from the middle office to the front office of asset managers.

The acquisition followed the previous year's purchase of a 72.7% stake in South African software provider, Infovest Consulting Ltd.

Infovest specialises in data warehousing and reporting software for the asset management industry, a sector in which StatPro also operates.

2016, meanwhile, saw the company acquire Investor Analytics (now known as Alpha), which will also beef up the group's flagship cloud platform, StatPro Revolution.

Reaping rewards of early investment in the cloud

The group's early switch to the cloud, which started taking place in the latter half of the previous decade before most of us had even heard of the term, looks to have been a very shrewd one.

The cloud-based StatPro Revolution platform saw organic revenue growth of 16% in the first half of 2017, as the group as a whole reported a 2% organic rise in revenue.

The group announced in a trading update that full-year revenues for 2017 are expected to be around £49.0mln, up 30% from £37.6mln the year before.

Annualised recurring revenue (ARR) for the group as a whole rose by 39% on a constant currency basis to £53.0mln from £38.1mln the year before. ARR for StatPro Revolution rose 13% organically.

Adjusted underlying earnings are expected to be roughly £6.9mln, up 35% from £51mlm the year before, when the audited figures are published.

Net debt at the end of the year had doubled to £20.2mln from a year earlier as the company ploughed money into its acquisitions.

The legacy StatPro Seven platform is still soldiering on, but software-as-a-service is clearly where it’s at.

“This success is undoubtedly due to our early investment in cloud technology, over eight years ago. The complexity and scale of the technology we have developed will be difficult to imitate,” said Wheatley.

“We are now firmly established as a leading innovator in the rapidly digitising asset management industry.”

Research house Edison continues to see strong upside potential

The research house said the 2017 trading update was broadly in line with its forecasts.

It is forecasting revenue of £48.9mln for the year just ended and sales of £57.3mln in the current year.

It expects profit before tax to surge to £4.2mln this year from its forecast £2.7mln in 2017.

With the company investing for growth, Edison is not expecting the 2.9p annual dividend to be changed.

Edison said that bearing in mind a number of takeovers in StatPro’s sector in 2017, the stock looks cheap.

Key competitor BISAM was acquired by Factset for 7.3 times annual sales. On the same multiple, StatPro – currently capitalised at £168mln – would sell for around £342mln.

“Separately, [the] LSE acquired Yield Book (a key competitor of Delta) along with Citi Fixed Income Indices from Citi for 6.4x sales, although we understand that the US$685mln price largely related to the indices. Additionally, SS&C is acquiring DST Systems at c 2.4x 2018 sales,” Edison noted.

The stock does trade on a high earnings multiple, as befits a growth company. Based on Edison’s forecast of earnings per share of 4.9p for 2017, the stock is valued at a poky 37 times earnings but this falls to 25 in 2018, based on Edison’s forecast.

“Our DCF [discounted cash flow] model, when incorporating 10-year organic revenue growth of 4.4%, terminal growth of 2%, a long-term margin target of 24.5% and a WACC [weighted average cost of capital] of 9%, would value the shares at 224p,” Edison said.

At the time of writing, the shares were trading at 180.5p.

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