What is the stock?
Praemium – the business provides portfolio administration, investment platforms and financial planning tools to the wealth management industry both in Australia and the UK.
How long have you held the stock?
The Micro-cap fund has owned the stock for a few years now and from time to time trimmed/added when opportunities have arisen
What do you like about it?
Our analysis is quite simple. Praemium is growing its share in a growing industry (superannuation). The business funds balance (Funds under administration) has grown by over A$1.4bn to over A$6bn in FY17.
We believe that it is all about the growth in funds balance for the business. The business also showed some operating leverage in the recent result (namely profit grew faster than revenue) – which is always a positive trend in well run software and financial service businesses.
How is it better than its competitors?
The business has a solid software product and developed systems in a growing part of the superannuation and investment market. Praemium has been in business for many years now, has established products and services, an installed customer base and has $9.8m cash and considerable sunk R & D within the business.
Praemium is also expanding into the UK financial market – that is undergoing change to become more open and more “Australian” with respect to self-managed super funds and consumer choice.
What do you like about its management?
Management delivered operating leverage to the business in the recent result and continue to grow the funds under advice balance despite some previous board room changes/issues in FY17.
These issues appear to be resolved now and the business continue to perform well.
What is your target price?
We see fair value above the 0.50c range, but the valuation is highly sensitive to the growth in funds under advice (FUA).
At what point would you sell it?
We have been recently topping up the position. We will look to take profits if it exceeds our target price, however the company reports quarterly FUA inflows and there is potential to see further strong growth in funds both in Australia and the UK. So, assuming funds inflow remain strong, there is the possibility that the share price could trade above fair value.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
It has been a modest contributor to the performance last year. If the funds balance keeps growing – we believe it will have a good FY18.
Where do you see value?
In the mid low to mid 40’s.
Source: ASX
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
