Fin tech (Fintech or financial technology) companies have been in the news a fair bit over the past few months – mostly on expectations of their disruption to the normal providers of financial services.
In fact, we've mentioned a few companies in a couple of articles here and here.
Here are another 4 companies you might want to consider adding to your watchlist…
Link Administration Holdings Ltd (ASX: LNK)
One company the market has proved me wrong on is Link, which I suggested was overpriced when it listed on the ASX in October 2015 at an offer price of $6.37 – the top of the IPO offer price range and a P/E ratio of roughly 29x. Since then, the share price has taken off and now trades around $7.62. Investors Mutual director Anton Tagliaferro said at the time the price was high, but he regarded Link as a quality company with good growth prospects.
Link mainly provides superannuation fund administration software, of which the company says it has 30% market share. Predominantly, super funds utilise their own internal super administration systems, or operate third-party software platforms utilising their own staff, or they can outsource most or all of their operations to companies like Link. The company also provides other capital markets services such as share registry services.
The current price still looks expensive to me – at roughly 35x earnings, but the company had a very solid six months to end of December 2015, and if Link can continue to generate strong growth, then maybe it can justify its current price.
GBST Holdings Limited (ASX: GBT)
A competitor to Link in the superannuation software sector, GBST also provides software platforms for wealth management and capital markets. Year-to-date GBST's share price is up 8% to $4.70 currently, but that includes what can only be described as a shocker half year result — which the company alluded to in October last year and which saw its share price plunge 30% — and news that its former managing director Stephen Lake was suing the company for $2.6 million.
GBST says it will defend the claim 'vigorously', and has forecast a much strong second half. Software companies can sometimes see client contracts slip over into another reporting period, despite taking the costs and expenses in a prior period. These temporary delays are usually just that, with expected revenues eventually occurring, making for lumpy and often volatile results.
GBST shares aren't cheap, but like Link, GBST also has the ability to generate strong growth.
Class Ltd (ASX: CL1)
Class provides superannuation administration software for self managed super funds (SMSFs). The company claims to have ~17% of the market share – in terms of totally registered SMSFs, with more than 100,000 SMSFs on Class's system and 865 total customers.
Since listing on the ASX in December 2015 at $1.00, the company's share price has taken off and currently trades around $1.95. No wonder, with revenues for the first half of the 2016 financial year up 48% and net profit up 111%.
Like Link and GBST, Class shares aren't cheap, with a P/E ratio in the high 30s, but it too is delivering strong growth. While the company is adding more SMSFs, growth is likely to be very strong, but at some stage the company is going to face natural limits – most notably the total number of SMSFs. That may be some way down the track though.
Praemium Ltd (ASX: PPS)
Praemium is the baby compared to the three companies above with a market cap of $134 million. The company provides software platforms for investment administration, separately managed accounts (SMA) and financial planning software. It currently has more than 900 customers, servicing more than 300,000 investor accounts.
Praemium had a strong first six months of the 2016 financial year, with revenues up 33%, and global funds under administration (FUA) up 41% to $4.5 billion. That FUA is small compared to some other financial providers, but is clearly growing nicely.
The growth in SMAs which allow investors to maintain semi-autonomous control of their investments is soaring as DIY investors seek more control of their investment portfolios outside traditional superannuation funds. At the current price of around 34.5 cents, shares don't appear cheap, but Praemium may be the cheapest of the four companies here.
Foolish takeaway
Australia is expected to have $10 trillion in superannuation by 2030 from its current level of just over $2 billion. If the companies above can capture even a tiny portion of that they and their shareholders should do very nicely.
