Is this under-the-radar small-cap about to boom?

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With a paltry market capitalisation of $158 million, you could be forgiven for not knowing about little fintech star Praemium Ltd (ASX: PPS). The company provides funds management administration software and investment platform solutions to businesses, similar to peers Class Ltd (ASX: CL1) and Hub24 Ltd (ASX: HUB).

With a stellar 43% rise in 2016 and strong full-year results, I believe it’s time to take a closer look at this potential rock star stock.

About Praemium

Praemium’s customer offering is a mix between funds administration provider Class and wealth solutions specialist GBST Holdings Limited (ASX: GBT).

Praemium operates in three broad segments – investment administration, separately managed accounts (SMA) and financial planning technology platforms. According to its website, it administers over 300,000 investor accounts that cover $80 billion in funds globally, and it boasts some 700 financial institutions around the world.

This provides it with leverage in an industry where scalability is key.

Company results

So far, Praemium appears to be using its market position well. In its 2016 full-year results management reported a whopping 72% increase to underlying earnings (EBITDA). Revenue increased 23% to $30.2 million and SMA funds swelled 25% to a record $4.8 billion.

The company also returned its maiden profit in the year, with net profit after tax coming in at $0.8 million. These results, coupled with its strong operating cash flow and solid balance sheet means Praemium has great potential ahead of it.


Of course, with its shares trading at almost a 200x price-earnings multiple (based on 0.2 cents earnings per share), Praemium is expensive and thus its outlook is key.

Management indicated future growth will be driven by transitioning clients to SMAs. With management citing a Morgan Stanley report which forecasts the SMA market is likely to grow at a compound annual growth rate of 35% until 2020, if Praemium can capitalise on this trend, its current share price would be a bargain in hindsight.

Foolish takeaway

In my opinion, Class remains the gold standard in funds administration software with it boasting leading market share in the SMSF space. Nevertheless, Praemium appears to be hot on its heels with the added benefits of diversification into the institutional sphere.

Although Praemium shares carry a higher risk, investors should keep an eye on this stock, given its stunning growth potential.

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Motley Fool contributor Rachit Dudhwala has no position in any stocks mentioned. 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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