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StatPro's Revolution set to transform the company's prospectsJanuary 26 2011, 2:16pm
The name of the product says it all. It’s called Revolution, and it has the capacity to transform the company’s prospects.
Certainly StatPro’s management is excited about its potential – and this came through loud and clear when chief executive Justin Wheatley addressed the Proactive Investors One2One Forum just before Christmas.
However the market has been slow to react to Revolution’s possible impact, with the share price bumping along at 115 pence, up 4 percent in the past year, but down 6 percent in the last quarter.
Revolution is a low cost, high spec analytics package for fund managers, which has all the bells and whistles of a much more expensive piece of software.
It includes risk management functions, performance and attribution analysis as well as the capacity to publish bespoke reports for clients explaining how and why their portfolios performed the way they did.
For StatPro it takes the company further down the software as a service (SaaS) route. It now derives 30 percent of its revenues from this source.
For the uninitiated, SaaS is part of the cloud computing phenomenon where programmes are delivered on demand via the internet, rather than sold as rentals and installed on customers’ premises.
As such products tend to be easy to use and support. Costs are lower, which has a knock-on effect on price.
In the case of Revolution, StatPro is offering the service at a fee of US$100 per portfolio a month.
This it hopes will open up a new and potentially lucrative tier of the market. Its current product StatPro Seven has been an incredible revenue generator.
Revolution is tailor-made for the cost conscious smaller fund managers who dominate the spending in the sector.
There are around 25,000 firms managing US$1 billion or less but which collectively spend US$3 billion annually on analytics, and there’s another 3,000 that spend US$1 billion, according to a study by Watson Wyatt.
The top 25 fund managers manage around US$27 trillion of investors’ cash, yet between them shell out a comparatively paltry US$300 million on software.
So there is some real money to be made stepping out of the direct firing line of the big data providers such as Reuters, Bloomberg and Factset and aiming for the smaller clients.
Wheatley and his team are targeting the industry’s gatekeepers – custodians and wealth managers – as well as smaller asset managers and firms in emerging markets such as Asia and South America.
“(Revolution) is aptly named as it is completely different from traditional software products,” Wheatley said in a recent interview.
“It’s software as a service. So to access it you come in via the web. It stays in one place so it is very easy to access anywhere in the world.
“And the way it is priced is very competitive. So instead of having to buy a whole system for maybe tens or hundreds of thousands of dollars, you can have all the analytics we provide for US$100 per portfolio per month, which is incredibly cheap on a per portfolio basis.
“It means even the smallest fund manager can have access to the most sophisticated portfolio analytics previously only available to the richest fund managers.”
However it has gone large with its first major Revolution client after signing up an unnamed but major custodian bank.
This one customer has the potential to be a major revenue earner as it manages over 3,000 separate investment portfolios, though initially only 200-500 will be analysed and managed using the StatPro product.
Revolution goes live next month after an extensive period of beta testing that has also served as an opportunity to virally market this new and innovative piece of software.
“Over its 16-year history, StatPro has established a strong niche as a provider of solutions for the asset management industry,” said Richard Jeans, an analyst at Edison Investment Research, in a note to clients.
“It has strengthened its position through a series of acquisitions which have provided the product breadth and scale to operate highly effectively on a global basis.
“We now see a greater emphasis on organic growth with the near term very focused on the evolution of the traditional business to StatPro Seven and the commercial launch of StatPro Revolution.”
Today’s trading statement revealed the company is on course to post revenues of £33 million this year and EBITDA of £8.5 million.
The company’s own broker Cenkos doesn’t expect Revolution to start generating what it calls significant returns until 2013.
Even so it is predicting EBITDA in the next two years of £7.3 million in 2011 and £8 million in 2012. StatPro also pays a modest but growing dividend which is well covered.
The shares trade on around 10.3 times 2011 EBITDA and just over two times revenues, which according to research carried out by Edison places StatPro at a modest premium to its closest UK peers.
However some of the take-out multiples for deals in the sector make StatPro’s current stock market rating look quite modest.
“MSCI recently acquired RiskMetrics for US$1.55bn or 4.5 times 2011 revenues and 13 times EBITDA – we note this is roughly double StatPro’s valuation multiple,” said Edision analyst Richard Jeans in a research note.
“Further, we believe StatPro could benefit from any disarray this merger causes from any rationalisation or customer dissatisfaction.
“Also, Interactive Data Corporation, a major data provider in the US, was recently bought by private equity for US$3.4bn. In our view StatPro could modestly benefit from consolidation or any disarray in the data markets.
“Interestingly, the previous chief executive of IDC, Stuart Clark, recently joined the StatPro board as a non-executive director.”