For stockmarket participants, whether they are aware of it or not, software company IRESS Ltd (ASX: IRE) plays a critical part in the ongoing functioning of the market. Its critical software packages are deployed across many participants' networks – think stockbrokers, fund managers and financial advisors – allowing investors to access company information, data, pricing and trade execution.
Despite its impressive niche, IRESS has struggled to organically grow revenue and profit over the past few years, leading to a stalling of its share price. Over both one and four-year time periods the share price has barely moved. Just holding the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) over the past four years would have delivered a 23% return. With the stock down 11% this calendar year, it could be time for investors to take a closer look.
Here are a few pros and cons about IRESS to consider.
There's much to like about Iress
- IRESS founder Peter Dunai is currently Chairman. Dunai's shareholding is valued at approximately $7.5 million which gives him plenty of reasons to remain focussed on growing the company further.
- ASX Ltd (ASX: ASX) is on the share register with a 19.3% holding. Substantial synergies could result from combining the two companies.
- The 2013 acquisition of Avelo has positioned IRESS as a leading technology provider to the wealth management and mortgage sourcing sectors in the UK. IRESS has set about replicating its domestic success in overseas markets including Canada, South Africa, UK and Asia.
- A steady dividend of 38 cents per share has been maintained for the past three years, which highlights the sustainability of IRESS' earnings. Based on a share price of $8.40, this equates to a dividend yield of 4.5%.
Valuation and growth are concerning
- Underlying group profit after tax has now declined in both 2012 and 2013. This is at least partly due to the domestic Financial Markets division which appears to have reached maturity with revenue effectively flat.
- While overseas expansion opportunities are expected to provide the growth they are a higher risk strategy.
- Based on forecast earnings, the stock trades on a price-to-earnings ratio of 19.7 which appears lofty given the haziness of IRESS' growth profile.
