Why the Countplus Ltd share price is soaring this week

Accounting and financial services aggregator, Countplus Ltd (ASX: CUP) shares jumped over 5% yesterday on the back of a trading update after management provided a positive outlook for the company based on its investment in Class Limited (ASX: CL1).

In light of the update, I think it might be a good time to reconsider purchasing shares in Countplus.

Trading update

Countplus’ management provided a market update in light of recent weakness in Countplus’ share price. Prior to the update, Countplus’ shares had slumped over 40% over the last six months, arguably due to the market writing off its ability to maintain earnings.

Consequently, management reiterated full year net profit guidance yesterday, stating it should “not be materially different from last year’s results, if not marginally higher.” The announcement comes at a time where the likes of Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) announce slowing growth within the financial services sector, indicating a robust performance from the professional and financial services aggregator.

Dividend yield

Countplus’ management further reiterated that it should continue paying a 2 cent fully-franked dividend per quarter. Provided this is maintained going forward, Countplus currently trades on a gross trailing yield of 19.4% (inclusive of franking credits), making for a solid income stream.

Future growth

Countplus’ future growth should come organically from new acquisitions within its existing aggregator business. Whilst industry headwinds may mean growth will stagnate, I expect Countplus being able to maintain market share due to its ‘sticky’ business model.

Another avenue for growth is Countplus’ investment in Class Limited.

Class investment

Countplus currently owns 5.04% of Class (or 5,882,540 shares as at 31 December 2015), valuing the stake at approximately $15.2 million based on yesterday’s closing price of $2.58. As indicated by management, the growing market value of Class means Countplus’ stake now accounts for almost 20% of Countplus’ overall market value. This implies that at current prices, Mr market values Countplus’ existing business at a significant discount to last year (all else being equal).

As at 31 March 2016, Class Limited had a total of 100,368 billable portfolios roughly accounting for 17.5% of total SMSFs in Australia. With the entire Countplus Group adopting Class Super as its preferred SMSF software and companies like Deloitte, Macquarie Group Ltd (ASX: MQG) and National Australia Bank Limited (ASX: NAB) using some of its software services, Class Limited should continue to grow solidly into the future, auguring well for Countplus’ investment.

Foolish takeaway

Countplus’ aggregator business is on a stable footing, despite intense competition in the small and medium accounting sector. Nevertheless, Countplus’ advantage lies in its innovation, with its investment in Class Limited providing a kicker to earnings.

In spite of industry-wide headwinds, I believe Countplus’ juicy dividend yield and tailwinds from its Class Limited investment makes it a good time to purchase shares in this professional services firm at current prices.

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Motley Fool contributor Rachit Dudhwala owns shares of Countplus Limited. The Motley Fool Australia owns shares of Class Limited. 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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