Trading remains in line and we have maintained our forecasts, which imply 2.7% FY19 organic revenue growth. Management’s two key priorities for FY19 are 1) improving EBITDA margins in all areas of the business and 2) ensuring the Delta integration is a success. In the longer run, margins stand to benefit from the group’s increasing scale and costs dropping out as the group’s three software platforms are consolidated over the next few years. In our view, the shares continue to look attractive, given the group’s c £56m recurring revenue book and the declining rating (c 15x FY20e), especially in light of the active M&A backdrop in the financial software sector. We note that Axioma, a StatPro competitor in the risk space, was recently acquired by Deutsche Börse for $850m or c 8.5x sales.
StatPro has recently announced two new contract wins: 1) a three-year contract with an EU investment manager for Revolution Delta, with a minimum contract value of €1.2m, including the addition of a new module to cover the new EU Money Market Regulations; and 2) a three-year contract extension with a top 20 fund administrator for Revolution, with a minimum contract value of £2.44m.
The group has increased its financing facilities to an aggregate £49m and extended them to April 2024. The funding is available for acquisitions, share buy-backs and general corporate purposes.
The SiSoft legal case was initiated in 2011, and in January 2017 the Commercial Court of Paris found in favour of StatPro. However, the Court of Appeal of Paris has now found in favour of the SiSoft shareholders and partially overturned the original ruling. StatPro strongly rejects the interpretation of the agreement by the Appeal Court and is considering an appeal to the French Supreme Court. We have assumed £0.85m of additional acquisition costs and £0.15m of interest. We now forecast the group to end FY19 with net debt of £22.2m (previously £21.2m).
StatPro’s stock trades on c 17x our maintained FY19e EPS, which falls to c 15x 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 230p, 74% above the current share price.