Vibrant underlying growth in revenues from its cloud-based portfolio analysis product, Revolution, drove a strong performance for StatPro Group PLC (LON:SOG) in 2016.
Revenue rose 24% to £37.55mln from £30.19mln in 2015, helped by acquisitions and foreign exchange (forex) tailwinds.
Adjusting for forex movements, the rise was 16%, while stripping out the contribution from acquisitions the growth rate was 2%.
WATCH: StatPro boss bullish on 2017 ...
StatPro Revolution's revenue grew 48% year-on-year on a constant currency basis and by 60% using actual exchange rates.
As announced in its January trading update, StatPro's annualised recurring revenue clocked in at £39.27mln, up 18% on a constant currency basis from 2015's £33.36mln.
Stripping out the effects of forex movements and acquisitions, annualised recurring revenue rose 6% from 2015's level.
Adjusted underlying earnings (EBITDA) rose 26% to £5.10mln from £4.04mln in 2015.
The company had signalled to the market in January that it would be taking a chunky impairment charge in its 2016 accounts, most of which would be of a non-cash nature.
The group adjusted the value of goodwill on historic transactions downwards by £9.72mln, which accounted for the bulk of the £11.38mln in exceptional charges in the accounts.
This meant that the portfolio analytics software provider recorded a pre-tax loss of £10.12mln, versus a profit of £2.41mln in 2015.
Stripping out the one-off charges, earnings per share (EPS) rose to 3.5p from 2.6p; the market consensus forecast for EPS was 2.8p.
The full-year dividend has been maintained at 2.9p, in line with expectations.
Trading in 2017 has started well, and the group is expecting another good year of growth in sales of StatPro Revolution.
The total forward order book of contracted revenue increased by 9% to £46.00 million at 31 December 2016 (2015 at constant currency: £42.10 million). The value of contracted revenue signed during 2016 was £14.01 million (2015: £11.71 million).
The group ended 2016 with net debt of £10.06mln, compared to net debt at the end of 2015 of £1.28mln. The increase in debt was primarily because of the acquisition of US-based Investor Analytics and money spent on buying back the group's shares.
The group continues to be cash generative, churning out £8.91mln of cash, excluding acquisition and restructuring costs, up from £6.55mln the year before.
"2016 was a pivotal year for us. We made two acquisitions, successfully launched Revolution Performance, won significant new business for this core new service and achieved our best year ever for new contracts for StatPro Revolution. Revenue and profitability were in line with our expectations,” said Justin Wheatley, StatPro's chief executive.
“Our total forward order book of contracted revenue is now £46 million and the current financial year has started well. We aim to continue our steady accretion of annualised recurring revenue whilst benefiting from the operational leverage inherent within our business," he added.
Speaking to Proactive Investors, Wheatley stressed the competitive advantage the group enjoys from its early decision to move its platform to the cloud.
“We're in a strong market position as the only cloud-based provider. Our competitors are left with large, complicated, legacy systems,” Wheatley observed.
Increasingly, clients in the asset management industry are coming to StatPro because the cloud-based platform offers quicker implementation, faster processing, greater scalability and the opportunity to migrate relatively swiftly from a legacy system to a modern platform.
Addressing the “relatively swiftly” aspect of that last sentence, Wheatley said the trial period for any company looking to move to Revolution varies from client to client.
“Generally speaking, the larger the client the longer it takes for them to put the service through its paces. Our systems can handle more than 300 assets, so it can be a complicated process,” Wheatley advised.
The company remains on the look-out for suitable acquisitions. In many cases, the likely target would be a competitor that has a “nice client base” but which lacks the funds to develop its own cloud-based system.
The company also considers companies that have complementary technology to StatPro's but the group's preference, in Wheatley's words, is “to scrunch other people's technology into our platform”.
Once it is integrated into Revolution, the group can develop it from there.
Wheatley said that research & development (R&D) expenditure in dollar terms would likely remain at the same level in the near term, which means that as the top line grows R&D would cost less as a proportion of total revenue.
At present it is around 16%.
Broker N+1 Singer said the results were in line with its expectations. The broker had pencilled in a figure of £5.0mln for adjusted EBITDA, which was a shade below the actual figure.
Revenue, at £37.6mln, was comfortably ahead of N+1's forecast of £25.1mln, thanks to a stronger-than-expected currency tailwind.
N+1 analyst Adam Lawson is waiting on the analysts' conference call with StatPro before adjusting his forecasts for the current year but said that based on the strength of the order book and healthy growth in the recurring revenue base, he expected to lift his revenue forecast by around 7% and his EBITDA number by some 4%.
“We are highly encouraged by continuing improvement in core KPIs [key performance indicators], healthy growth in the forward order book, record new contracts for StatPro Revolution in 2016 and the positive start that has been made to 2017 as evidenced by the six-year €3mln contract secured in March,” Lawson said.
House broker Panmure Gordon said the numbers beat its forecasts for both revenues and earnings per share (EPS).
“We continue to believe that the combination of growth and operational leverage should deliver EPS growth of 13% in 2017,” said Panmure's Sanjay Jha.
Recent share price weakness offers “a great investment opportunity”, Jha reckons.
The strategy of positioning StatPro as an innovator in cloud-based service continues to deliver, Jha said, while the legacy product, StatPro Seven, is holding up better than expected, “as most of the new growth in Revolution revenues is coming from new sales rather than conversion of Seven contracts, plus demand for certain Seven modules such as Composites is still growing”
“StatPro Revolution will remain the primary source of growth as the value potential in the game-changing Revolution Performance, which was launched in September 2016, is only just beginning to be recognised,” Jha believes.
The analyst noted that the adjusted EBITDA margin rose by 20 basis points (bps) – one-fifth of a percentage point – to 13.6%, despite a 120 bps increase in R&D spend as a proportion of group sales.
Jha expects the EBITDA margin to rise to 14.3% in 2017 and 16% in 2018 as the long investment process draws to a close and development costs as a proportion of revenue gradually falls.
Shares in StatPro were up 0.65 at 87.56p after half an hour of trading.
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