Why Iress Ltd is the best fintech stock to own on the ASX

Many smart investors want to see certain qualities in businesses before they consider them as potential investment opportunities.

A high yield, defensive moat, recurring earnings, product stickiness, scalability, strong margins, overseas exposure and a long track record of growth are often near the top of the list.

One leading financial technology business that ticks the boxes is Iress Ltd (ASX: IRE).

I have written about the merits of Iress multiple times before and with the stock up 23% over the last six months, versus a flat return for the S&P/ASX 200 (Index: ^AJXO) (ASX: XJO) it’s worth revisiting why the long-term outlook of this business should be attractive to investors.

Iress provides industry-leading technology to buy and sell side investment managers, brokers, market makers, and investment banks that use the software on a daily basis to process trades on an end-to-end basis. This means its products command premium prices within lucrative industries, with plenty of addressable markets to sell into around the world.

Moreover, once installed its products are critical to the day-to-day operational running of your average investment manger and are therefore extremely sticky. It would take a brave chief operating officer to propose dumping Iress’s systems in favour of an untested competitor and its core strength is the supreme stickiness of its software products.

Iress is a dominant player in Australia and the giant UK investment management industry. It is also growing into South Africa, Canada, and Asian regions.

Unlike more speculative fintech companies such as GBST Holdings Limited (ASX: GBT), Iress is the real deal with a financial year 2015 segment profit of $111 million on operating revenues of $361.5 million. The profit and revenue up 7% and 10% respectively over the prior full year.

The full year dividend of 41.5 cents per share places it on a tasty trailing yield around 4% when selling for $10.80, while the valuation on around 31x trailing earnings reflects the high quality of this business.

Investors then must be sure to pay sensible prices for this business, although it looks a buy on any substantial weakness in the share price.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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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