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StatPro Group PLC: THE INVESTMENT CASE
INVESTMENT OVERVIEW

StatPro benefiting from Delta belter

The portfolio analytics platform operator has been shrewd in its acquisition policy and the purchase of Delta from UBS may just be the best acquisition yet
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INVESTMENT OVERVIEW: SOG The Big Picture
StatPro moved to the cloud before most of us had even heard of the concept

StatPro Group PLC (LON:SOG) has long augmented organic growth with a series of bolt-on acquisitions, but the purchase of Delta could be the best yet.

Delta is a risk and performance analytics service bought from UBS in the spring of 2017.

Its acquisition -as "had a big impact on the capability of StatPro", Justin Wheatley, StatPro’s chief executive officer, told Proactive Investors. On top of that, the Delta business is now making money.

The acquisition gave StatPro “scale” and significantly enhanced its product capabilities, with the portfolio analytics platform operator working hard on migrating Delta's unique functionality onto the company’s flagship Revolution's platform.

With Delta now part of the family, StatPro's analytics service can branch out from the middle office to the front office of asset managers.

"The project to integrate Delta's functionality into our flagship product, Revolution, is going well. The launch of Revolution Fixed Income Attribution in July is the first step towards achieving functionality parity with Delta,” Wheatley told shareholders.

Data outsourcing expected to be a key trend in the asset management industry​

The acquisition followed the 2016 purchase of a 72.7% stake in South African software provider, Infovest Consulting Ltd.

Infovest specialises in data warehousing and reporting software for the asset management industry, a sector in which StatPro also operates.

The data division, Source: StatPro, now has its own divisional boss, following a restructuring of the business into three separate divisions.

The data division “leverages our access to huge quantities of data covering global equities, bonds and other data such as global mutual fund information,” according to Wheatley.

Reaping rewards of early investment in the cloud

The group's early switch to the cloud, which started taking place in the latter half of the previous decade before most of us had even heard of the term, looks to have been a very shrewd one.

Revenue from the flagship StatPro Revolution product, excluding the Delta business, rose 15% year-on-year (YOY) in the first half of 2018 while the StatPro Revolution annualised recurring revenue (ARR) increased by 19% on an underlying basis.

The legacy StatPro Seven service saw its revenues hold up well, with a year-on-year decline of 2% and is still soldiering on but software-as-a-service is clearly where it’s at.

“This success is undoubtedly due to our early investment in cloud technology, over eight years ago. The complexity and scale of the technology we have developed will be difficult to imitate,” said Wheatley.

“We are now firmly established as a leading innovator in the rapidly digitising asset management industry.”

For the group as a whole, adjusted underlying earnings (EBITDA) rose 23% to £4.34mln from £3.53mln in the first half of last year.

Analysts continue to see strong upside potential

Research house Edison has previously drawn attention to a number of takeovers in StatPro’s sector in 2017, on which basis the stock looks cheap.

Key competitor BISAM was acquired by Factset for 7.3 times annual sales. On the same multiple, StatPro – currently capitalised at £95mln – would sell for around £342mln.

“Separately, [the] LSE acquired Yield Book (a key competitor of Delta) along with Citi Fixed Income Indices from Citi for 6.4x sales, although we understand that the US$685mln price largely related to the indices. Additionally, SS&C is acquiring DST Systems at c 2.4x 2018 sales,” Edison said.

Brokers are forecasting full-year revenue for 2018 of £56.9mln from £49.3mln in 2017.

Forecast earnings per share of 5.92p put the stock on a project price/earnings ratio of 20.4, which is not out of the ordinary for a growth stock operating in the technology sector.

The annual dividend has been held at 2.90p since 2014 and is tipped to remain there as the company invests for growth; at that level, the stock yields 2.0%.

"In 2018 and beyond, we anticipate strong growth in specialised managed services for regulations, risk and performance. We are focused upon building our partnerships with asset service providers to broaden the services they offer the asset management community,” Wheatley said.

Broker Stifel responded to the half-year results by increasing its full-year estimates.

“The aces in these results are: (i) 19% growth in Revolution’s underlying ARR; (ii) SaaS [software-as-a-service] as a percentage of software ARR now 84% (2017: 82%); (iii) Adj EBITDA +23% Y/Y to £4.34m,” Stifel said.

Stifel rates the shares a 'buy' and has a 276p target price, up from its previous target of 272p, to reflect the forecast changes.

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Big Picture
August 19 2018

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