Iress Ltd shares jump 8% – Are they still a buy?

The share price of Iress Ltd (ASX: IRE) jumped 8% on Thursday to close at $9.72 after the software group reported an impressive set of full year results.

The pleasing results were thanks to strong growth in UK revenues where XPLAN’s annualised contract value grew by 11% in the second half (Iress operates on a calendar year basis) as well as strong demand from advice and private wealth businesses for integrated Iress solutions.

A resilient domestic financial markets business produced a sound performance with domestic earnings growth being driven by double-digit growth in wealth management.

South Africa also produced a strong performance from wealth management with constant currency profit up 31%.

Here are the key figures:

  • Revenue increased 10% to $361.5 million
  • Group segment profit was up 7% to $119.2 million (3% on a constant currency basis)
  • Net profit after tax grew 9% to $55.4 million
  • Earnings per share up 9% to 32.3 cents per share (cps)
  • A partially franked final dividend of 26.7 cps has been declared. Iress’ shares will trade ex-dividend on March 9 and payment is March 24.
  • For the full year dividends totalling 42.7 cps have been paid or declared
  • Net debt stood at $185 million on December 31

2016 Outlook

During 2015 Iress achieved a number of significant client wins including being appointed as the advice technology partner to the Commonwealth Bank of Australia (ASX: CBA) to deploy Iress’ multi-channel advice platform supporting CBA’s full-service advice businesses and scaled advice. The CBA win and others should help drive growth into 2016.

The ASX Ltd (ASX: ASX) remains the largest shareholder in Iress with a 19.33% stake – given the group’s strategic assets there are a number of investors who believe Iress could attract the attention of an acquirer. So whilst a takeover is possible, investors wouldn’t want to count on it occurring.

Based on 2015 EPS of 42.7 cps the trailing price-to-earnings ratio is 22.8 times. That might not be excessive considering the high quality of this strategically positioned software company with enviable profit margins and significant growth potential in the UK.

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Motley Fool contributor Tim McArthur owns shares in Iress Ltd. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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