Financial software company Class Ltd (ASX: CL1) released its 4th quarter update to the market this morning, revealing more robust growth in its total account numbers.
Equally promising, the company continues to win a growing share of business away from competitors, with recent changes to self-managed super fund (SMSF) reporting requirements effectively forcing accountants away from legacy desktop and spreadsheet solutions.
On the downside, the business experienced lower than expected growth in its Class Portfolio solution. Management attributed this to focusing its sales resources on capturing growth in the SMSF software area, using the above mentioned change to reporting requirements as a catalyst. After peak SMSF sales season winds down, resources are expected to be redeployed to Class Portfolio which should see growth in that business pick up over the next few quarters.
Importantly, Class has room to continue growing its market share from these levels, and an increasing amount of recurring revenue should see the company start to realise benefits of scale (i.e., more revenue should start to fall through as profit). Class could also potentially benefit from either selling new services to existing customers, or raising prices (since it may be painful for customers to switch providers), although it is a competitive space which may reduce its pricing power.
So while the company looks to be trading at a very high price, it could potentially go on to justify these prices and more over the next 5 years.
