StatPro produced a solid set of interim results, with organic annualised recurring revenue (ARR) growth accelerating to 3.2% from 1.1% at end-2018. The EBITDA margin continued to expand and the group has a widening range of growth drivers in place. After many years of development on the group’s Revolution cloud platform and new divisions in place, which also creates opportunities in the data space, the focus is increasingly shifting onto driving sales. Given the group’s c £57.3m recurring revenue book, the rating (c 16x FY20e) looks attractive, especially in light of the active M&A backdrop in the financial software sector.
Group revenue grew by 3.2% over H118 at constant currencies to £28.3m, including the regulatory risk services bureau acquired from ODDO BHF, which was consolidated from 1 July 2018. The group EBITDA margin expanded by 110bp to 20.1%. The margin in both periods is boosted by more than 300bp as a result of the adoption of IFRS 16. The more forward-looking ARR grew by an underlying 3.2% to £56.5m. After the period end, StatPro acquired an ESG research and index business for €2.9m that has an ARR of c £0.8m. Net debt, excluding leases, rose by £0.8m over the six months to stand at £24.2m. In addition, there are £7.8m of lease liabilities in the balance sheet, following the adoption of IFRS 16, which compares with £1.3m of finance leases at 31 December 2018, under the previous accounting standard.
We have broadly maintained our forecasts, but the EBITDA numbers are boosted by the first-time inclusion of IFRS 16. The impact on adjusted operating profit is broadly neutral while our EPS forecasts are eased slightly. We have incorporated the new divisions for the first time.
StatPro’s stock trades on c 19x our FY19e EPS, which falls to c 16x in FY20e and to c 13x in FY21e. Alternatively, the shares trade on c 2.1x FY20 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, 71% above the current share price.
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