Bravura Solutions Ltd has IPO to forget: shares sink 17%

In late afternoon trading, the share price of Bravura Solutions Ltd (ASX: BVS) was down 17% at $1.20, compared to its IPO price of $1.45.

Is this yet another private equity IPO that disappoints?

On the face of it, a prospective P/E ratio of 14.8x at the issue price of $1.45 doesn’t appear expensive at all. And a forecast dividend yield of between 4.1% and 5.4% based on a payout ratio range of 60% to 80% looked attractive.

It’s hard to put the finger on exactly why investors have dumped their shares at a loss. Why did they bother investing in the first place, if they weren’t impressed with the float price or the IPO in general?

It’s not like the price was an expensive one either. And Bravura’s software products and services for the wealth management and fund administration sectors in Australia, New Zealand and the United Kingdom appears to have some decent tailwinds behind it.

The company has a market leading position in the three countries, with more than 70 clients who administer more than $2.3 trillion on behalf of millions of customers using Bravura’s software.

Perhaps investors aren’t happy that private equity seller Ironbridge can sell 25% of its remaining 101.1 million shares once Bravura has released its financial results for the six months to end of December 2015, and the remainder once Bravura has released its 2017 financial year results to the market.

Still, Ironbridge can only sell 25% of its remaining shares, if the volumed-weighted average share price exceeds the offer price by at least 20% (or $1.74).

Hockey stick or British Pound?

Or maybe investors are concerned about the ‘hockey-stick’ forecast. Net profit was just $6.8 million in the 2016 financial year, but is expected to at least triple to $21 million pro forma in FY2017, despite revenue rising 1.6%.

It could also be that competitor GBST Holdings Limited (ASX: GBT) finds its share price languishing near 52-week lows at $3.71. GBST has been negatively impacted by the falling British Pound from Brexit, but also customers delaying project starts and lower services revenue.

Foolish takeaway

Investors might want to keep an eye on Bravura as there’s the potential for the share price to fall further, and the company’s prospects appear attractive. Maybe the shares just need to be repriced.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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