StatPro has acquired ECPI, a small private Italian environmental, social and governance (ESG) research and index business, from its management for a total consideration of c €2.9m (c £2.6m). While the deal is small, we believe there is significant potential to add value by cross-selling the products to StatPro’s large global client base. In our view, the shares continue to look undervalued, given the group’s c £56m recurring revenue book and the attractive rating (c 14x FY20e), especially in light of the active M&A backdrop in the financial software sector.
StatPro has acquired ECPI from its management for an initial payment of €0.9m with an additional deferred contingent payment in March 2022, which StatPro currently estimates at €2.0m. ECPI provides ESG indices and benchmarks and related services including constructing client-specific benchmarks. It carries out ESG research and produces ratings on an active universe of approximately 3,500 companies (total universe of 4,500+) globally and uses these ratings to qualify companies for inclusion into a series of ESG investable indices, or to provide portfolio screening services. ECPI operates a recurring revenue business model and has annualised recurring revenues (ARR) of c €0.9m. StatPro can cross-sell the service to its substantial client base and plans to incorporate it into its flagship StatPro Revolution cloud services product.
We have added £0.4m of revenues in FY19 and £0.8m in FY20 and FY21 with EBITDA little changed in FY19, and rising by c 2% in each of FY20 and FY21. With forecast interest costs increasing by £25k in FY19 and £50k in FY29, EPS edges up c 1% in each of FY20 and FY21. After adding the initial £0.8m payment in FY19, we now forecast the group to end FY19 with net debt of £23.0m (previously £22.2m), which falls to £18.3m a year later (£17.5m).
StatPro’s stock trades on c 16x our FY19e EPS, which falls to c 14x in FY20e and to c 12x in FY21e. Alternatively, the shares trade on c 1.9x FY19 EV/sales, around a third of the level of StatPro’s larger US financial software peers and a quarter of the level of US-based pure software-as-a-service companies. Our DCF model, when incorporating 10-year organic revenue CAGR of c 3.7%, terminal growth of 2%, a long-term operating margin target of 24.0% and a WACC of 9%, values the shares at 235p (vs 230p before), 77% above the current share price.