This morning financial technology business Iress Ltd (ASX: IRE) reported a net profit of $32.7 million on operating revenues of $194.3 million for the six-month period ending June 30 2016. The profit and revenues are up 15% and 14% respectively over the prior corresponding period.
Investors have cheered the news to send the shares 7.5 per cent higher at $11.50 with UK market growth the highlight as revenues soared 21% over the prior corresponding half. The UK financial services market dwarfs the ANZ market and Iress has plenty of potential to keep growing sales and revenues for its market-leading products in the UK.
ANZ and the rest of the world performance was also solid with profit margins in ANZ around 43%, which is a level that reflects the capital light nature of its technology services alongside the sticky and recurring revenue that they can generate over time.
The stickiness of Iress's products is also legendary as once the tech products are installed its extremely unlikely an asset manager or similar is going to uproot pretty much all its operating systems to dump Iress in favour of a competitor's offerings. This stickiness combined with the products' market-leading nature is what creates a moderate network effect and allows the company to charge premium prices.
No wonder I named Iress as the best fintech stock to own on the ASX earlier this year and I expect it will continue to outperform the market over the medium term. Moreover, it also offers a decent trailing yield in the region of 3.6% with that likely to climb over time.
Valuation
The group delivered 20 cents per share in earnings for the half-year period which mean it trades on 28x annualised eps when selling for $11.50 today. Risks remain over service delivery, valuation, competition and a general downturn in capital market strength, however, I still regard this as a reasonable entry point for one of the S&P/ASX 200's best quality technology businesses.
