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Lombard Risk Management plc: THE INVESTMENT CASE

Lombard Risk Management says revenues, earnings and cash ahead of expectations

The top line was driven primarily by the strong growth of the company's Risk Management and Trading Software Division
Lombard Risk Management says revenues, earnings and cash ahead of expectations
INVESTMENT OVERVIEW: LRM The Big Picture
The company develops risk management solutions for the financial services industry

Lombard Risk Management plc (LON:LRM) said it expects revenues, underlying profits and its cash position to be ahead of market expectations following a period of substantial investment.

The provider of risk management software to the financial services industry said turnover for the 12 months ended March 31 would be in the region of £34mln-£34.4mln and EBITDA in the range of £2.4mln-£2.8mln. The company is sitting on around £7mln of cash.

The top line was driven primarily by the strong growth of the company's Risk Management and Trading Software Division, Lombard said.

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After raising £8.3mln via a placing and open offer of shares, Lombard was able to plough money into its core products as well as funding a development centre in Birmingham.

"The Lombard Risk two-year plan to achieve cash profitability was predicated on unlocking revenue growth by investing in both product and employees,” said chairman Philip Crawford.

The company's cash management has been “particularly encouraging”, following the focus on debt collection and working capital management, he added.

Broker bullish ...

In a note to clients on Lombard Risk, analysts at ‘house’ broker finnCap said: “Management has more than delivered on its promise to dramatically ramp revenues to deliver the level of profitability required to support the necessary development costs of business offering banking technology to Tier-1 global financial institutions.”

They added: “Moreover, the cash generation in the second-half appears to have been outstanding, with the group finishing the year with net cash of over £7mln, unchanged on September despite heavy capex (mostly R&D) flagged for the second half.”

In afternoon trading, Lombard Risk shares were almost 19% higher, up 2.00p at 12.63p.

Lombard will publish its full-year results on May 24.

Agile product

The company is a market leader in bank regulatory reporting software, while it also has a second string to its bow with its collateral management offering.

Its flagship AgileREPORTER product enables the company to keep the regulators and compliance officers happy, while also providing key information for company management.

“You don’t win gold medals for being brilliant at regulatory reporting, but you could be put out of business for not doing it correctly and in a timely fashion,” chief executive Alastair Brown told Proactive Investors in an interview last year.

Collateral management

Turning to collateral management, it is simply the process of monitoring, tracking and valuing the funds put up as collateral for a trade, such as highly geared derivatives position.

The Lehman collapse of 2008 revealed how financial institutions are bound together and affected by default on these often huge transactions, and also how woefully monitored the transactions were.

So, the push since then has been to tighten up the processes with technology such as Lombard Risk’s.

Lombard’s COLLINE product has one major competitor, but Brown said that in many cases the true competitor is each bank’s in-house system.

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