Provider of software to wealth management and funds administration clients, Bravura Solutions Ltd (ASX: BVS) is in buy territory, according to brokers from investment advisory firm Wilsons, despite its shares hovering around 52-week highs.
It's been a lucrative 12 months for the $668 million market cap company whose products are in use across the Asia-Pacific, Europe, The Middle East and Africa across superannuation, life insurance, private wealth and portfolio administration clients.
Bravura's share price has shot up from $1.36 at this time last year to land at $3.12 at Friday's close – a rise of 129% and not far from Bravura's 52-week high of $3.25 on May 9.
According to Wilsons, who recently visited Bravura in the UK, the company has nothing but positive news on the horizon, with its strong customer pipeline, exposure to the digitisation trend and various regulatory drivers indicating the stock is a buy.
Wilsons believe Bravura is getting things right from an operational perspective, with its improvement of maintenance margins increasing leverage and high recurring revenues giving the broker confidence that FY20 forecasts will increase and although its share price is at a high – the broker believes a current buy in would still be good value.
The broker increased its price target to $3.26 with its key reasons for backing the company including:
- Margin leverage
Wilsons believe Bravura is becoming less dependent on the timing of its new deals as it begins to grow its product capabilities due in part to a strategic focus by the company on financial organisations, with client-funded research and development providing greater headroom for margin expansion.
- Pipeline strength
Bravura's Sonata platform has a strong pipeline for growth in particular due to digitisation in the wealth management space with Wilsons forecasting 70% of FY18 revenue will come from Bravura's wealth management platforms.
- M&A potential
Wilsons has consistently increased its cash flow forecasts on Bravura, believing the company's $24 million cash balance sheet as at the first half of 2018 should drive the potential for merger and acquisition action.
- Valuation
According to the broker Bravura currently trades on a FY19E 4x EV/ recurring revenue and an EV/EBITDA of 15x vs peers at 12.3x. Wilsons see margin leverage driving a stronger premium on the EV/EBITDA multiple going forward which will contribute to Bravura's potential upside despite the peripheral risks of contract slippage.
Bravura is not the only emerging software player gaining attention for its innovation and early success.
Provider of cloud-based talent management software solutions ELMO Software Ltd (ASX: ELO) is also gaining attention in the tech space – so far outperforming its prospectus forecasts with Morgan Stanley earlier this month placing a $6.30 price target on the stock – which closed off trade on Friday at $5.32.
Another one to watch is the more substantial $5.4 billion market cap online accounting and business services company Xero Limited (ASX: XRO) who nailed the Australia and New Zealand market before expanding into the UK – a move that looks to be tracking well.
Investors are still waiting for Xero to turn a profit, but the likelihood is good, and the company is certainly one to consider in the sector.
Foolish takeaway
Bravura is a high-quality, fast-growing fintech company that just seems to keep kicking goals in the last 18 months. While its share price rise in the last 12-months might mean some investors are reluctant to buy in at these levels, I think its price will continue to go up, so any small dip would be worth consideration if a buy in is on your horizon.
