Why the Class Ltd share price soared more than 10% today

Class Ltd (ASX: CL1) saw its share price zoom as high as $3.00 today, after announcing a deal that will see more than 8,000 self-managed super funds (SMSFs) add onto its software platform over the next couple of years.

Wealth accounting group Findex found Class’s Super product as the best cloud solution to meet the needs of the company, and accelerate growth plans and extend Findex’s position as one of the largest SMSF administration providers in Australia.

Class has two main products, Super and Portfolio. The former is designed for the administration of superannuation – SMSFs, while Portfolio is for accounting, administration and reporting of non-SMSF investment portfolios.

Class passed the 100,000 portfolios mark at the end of February (both super and non-super), and at the end of march had more than 100,000 SMSFs administered on its platform. The company’s market share of the SMSF market at the end of March 2016 was 17.5% – and appears to be growing rapidly. In the entire second half of 2015, Class added 14,000 new portfolios – compared to the 8,000 it just added in one deal.

The software company has shown remarkable growth and it has translated into its financial results – with the first half of the 2016 financial year clocking up 48% growth in revenues and a whopping 111% growth in net profit after tax.

As the company notes, profitability increases with scale, which means that additional revenues virtually drop through to the bottom line. If you consider that adding an additional 1 portfolio to its platforms costs virtually nothing, you can see what adding 8,000 over the next few years can do.

Class has three major competitors in the SMSF administration software market, including BGL and Supercorp, as well as ASX-listed Reckon Limited (ASX: RKN). Reckon only has a Desktop product and no cloud-based product, while Supercorp has minimal market share given BGL is the clear market leader with over 75% of Australia’s SMSFs on its Simple Fund software.

However, many accountants continue to use simple tools like Microsoft Excel and general ledger accounting software to manually account for SMSFs.

When it comes to large non-SMSF super funds, the likes of GBST Holdings Limited (ASX: GBT) and Link Administration Holdings Ltd (ASX: LNK) compete in that arena, and Class doesn’t provide the solutions for APRA-managed funds.

Foolish takeaway

As Class adds more SMSFs to its portfolio, earnings and revenues should grow, and the company shows no signs yet of that progress slowing down. It could be time to add some Class to your watchlist.

The Class share price was up 10% at $2.85 in late afternoon trading.

Could these just released franked dividend picks turn $15,000 into over $30,000?

When renowned dividend investing pros like Andrew Page issue buy alerts, it pays to listen. Because investors who followed Andrew's recommendation of Australian Pharmaceuticals in early 2015 could've doubled their money in just over a year, turning $15,000 into over $30,000 by the time he recommended they sell and lock in their profits. Chances are you won't want to miss uncovering the names of Andrew's newest share recommendation and short list of 3 dividend Best Buys Now Shares.

Click here to learn more about these potentially life-changing shares - no credit card required.

Motley Fool contributor Mike King has no position in any stocks mentioned. You can follow Mike on Twitter @TMFKinga

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.