Financial software specialist StatPro is a British firm to be proud of

A key criticism that could be levelled at the UK’s software industry is that it has never managed to produce a company that has had the same scale as a Microsoft, Oracle or SAP. Perhaps our closest business software vendors to these firms are Autonomy and Sage, both constituents of the FTSE100, but even these two companies do not come close in terms of market cap to the aforementioned US and German goliaths.

But the UK does do a neat line in highly-specialised software developers. Some of the world’s best-known computer games were, and still are, developed by UK software firms (Eidos, for example) while we also have niche expertise in such areas as virtual reality software for engineering applications (Aveva Group).

Of course, one of the major reasons why no UK software companies get to grow as large as their US counterparts is because of the highly-acquisitive nature of the software industry. When a UK software firm threatens to become large, after managing to develop a hot new application that promises lots of income, more often than not it is snapped up by a foreign firm.

One niche software developer that could conceivably be a candidate for takeover in the future is StatPro Group.

A financial software developer, StatPro supplies portfolio analytics and data software to the global asset management industry. Founded in 1994, the company started out with one product and spent the next six years building up its client base before floating on the London Stock Exchange in 2000 (although it transferred to the LSE’s junior Alternative Investment Market in 2003).

StatPro has been an acquisitive business itself during the past decade, and this has helped it build up a portfolio of asset management software that can be bought as an entirely integrated suite of applications. Meanwhile, the company also offers “hosted services” where software is accessed by a client through the Internet, so reducing the cost and time consumed by the client in adopting new software since the responsibility for deploying, maintaining and supporting the applications is borne by StatPro.

Analytics applications offered by StatPro include:

·    Performance & Attribution – used to measure portfolio performance.

·    Fixed Income – a performance attribution solution for fixed income assets that decomposes returns, attribution effects and bond risks using a range of models.

·    Risk Management – a risk modelling tool that covers all asset classes and markets.

·    Portfolio Control – an approach to counterparty risk that uses two methodologies: the ‘Add-On’ method that uses attributes such as currency and maturity to calculate risk exposure; and the ‘NetVaR’ method that uses the ‘Potential Gain’ and ‘Expected Upside’ figures calculated by StatPro Risk Management.

·    Composites – a multi-currency composites and portfolio reporting solution.

·    Portfolio Management – a portfolio management application that offers analytics, accounting and reporting functionality as standard.

·    Client Reporting – a flexible, rules-based reporting system that generates, distributes and publishing fact sheets, client reports and valuations statements.

StatPro’s data offering is a complete suite of applications that range from asset pricing, corporate actions and reference information to an evaluated service that provides independent valuation of over-the-counter (OTC) assets, covering the world of fixed income, derivates and structured products.

This one-stop-shop approach to supplying the asset management industry has helped StatPro to increase annualised contracted revenue to £28.3m as at June 2009, from just £3.2m nine years ago. While StatPro had just 74 contracts in December 2000, today it has hundreds and includes 14 of the top 20 asset managers worldwide as customers.

In early September, StatPro announced that it had signed new or extended multi-year contracts for a variety of data and analytics services with 11 asset management firms in North America, Europe and South Africa. These firms included Nomura Asset Management, Aviva, Société General Securities Services and State Street.

A key plank in the group’s strategy is its hosted service, or ‘software as a service’ (SaaS) model. Despite the adverse effect that the world’s economic downturn, not to mention the effect of the financial crisis on the fund management industry, one reason StatPro has managed to keep growing is because of its focus on SaaS, which lowers the ‘total cost of ownership’ for customers who adopt it.

The company’s SaaS model, launched last year, involves offering all of its products online and SaaS installations have grown strongly recently, from 28 in March to 38 in August. September’s contract announcement indicated continued progress with the group’s SaaS platform.

Meanwhile, StatPro has also benefited from its decision to supply data with its software in order to minimise implementation time. The company aims to have almost all the important market indices covered by the end of this year, and its service also supplies corporate action data, market prices and sector definition data covering global equities and corporate debt.

StatPro’s most recent set of results covered the six-month period ending on 30 June 2009.

These showed that it had increased its first half adjusted pre-tax profit by 63% to £3.2m on H1 turnover that had increased 19% to £15.6m. Adjusted earnings per share for the period came in at 4.3p – a 39% increase on H1 2008.

Cash generated from operations increased to £5.3m during the period, compared with £3.4m in H1 2008. So, the group’s net debt stood at £10.8m at the end of June, against a net debt of £14.6m at the end of last year.

A recent update from the firm revealed that trading in the third quarter was ahead of Q3 2008 and in line with the directors’ expectations. StatPro added that the delivery of the next generation of its SaaS solution in 2010 would enable the group to offer its services to a broader market more cost effectively.

Chief executive Justin Wheatley said: “SaaS is going to change the rules of the game in the portfolio analytics market as it will do everywhere else. StatPro is ahead of the curve as we have both moved our existing products to a hosted environment and invested in totally new multi-tenant web-based software.

Consequently, StatPro’s shares have maintained their gains since rising from their low point last December of 33 pence, and currently reside at around the 100 pence level.

Looking ahead, house broker Cenkos Securities sees StatPro generating £31.1m of revenue this year, increasing to £32.5m and £34.4m in 2010 and 2011. The broker estimates that adjusted pre-tax profits will grow further this year to £6.5m (2008: £4.7m), and then hit £7.5m and £8m during the next two years.

So, earnings per share should come in at 8.8 pence, 9.5 pence and 10.2 pence in 2009, 2010 and 2011 respectively. At 99 pence each (the price at the time of writing), the shares currently trade at around 11.5x prospective earnings.

StatPro’s shares were trading at just over 90p when Cenkos put out a note stating that the share price “fails to reflect the longer term growth profile” of the group. The broker has set a price target of 124p.