2018 has been a great year for shareholders of emerging Australian fintech company Bravura Solutions Ltd (ASX: BVP).
Since January, Bravura's share price has almost doubled – pushed increasingly higher on the back of a string of positive financial results from the company. This impressive performance has drawn the attention of many investors – including me.
Here are three reasons why I think Bravura still offers great long-term growth opportunities for investors, even at current prices.
A balanced business
Bravura provides software solutions for the funds administration and wealth management industries. The company reported group revenues of $102.9 million for 1H18, up 10% from 1H17.
The result was driven by the strong performance of its wealth management business, where revenues increased by 26% to $72.8 million. This was more than enough to compensate for the loss of a key contract in its funds administration business.
If a business is too dependent on a particular client this is generally a red flag. But it's pleasing that Bravura was able to absorb the loss from this contract and still deliver overall growth. Despite 1H18 EBITDA falling by 26% against 1H17 in its fund administration segment, group EBITDA was still up 2% to $18.5 million.
Bravura expects both segments to grow in 2H18. A turnaround in its funds administration business, coupled with continued growth in its wealth management arm, could set up Bravura for a banner year in 2018.
Keep a lookout when the company's full year results are released late August.
Growing client base
Despite losing that key fund administration contract, Bravura has continued to expand its client base. Its flagship product is the Sonata wealth management platform, an innovative digital system that Bravura claims can reduce operating costs while increasing customer connectivity and engagement.
It supports a range of financial products, including superannuation, pensions and life insurance.
Since January, Bravura has inked long-term contracts with the Commonwealth Superannuation Corporation, which provides superannuation and pension services to the government employees and the Australian Defence Force, and Legal & General Investment Management, a FTSE 100 company and one of Europe's largest asset managers. Both contracts are for the use of the Sonata platform.
Bravura has smoked its competitors
Over the past year, Bravura shares have vastly outperformed those of its more established rival in the superannuation fund administration space, Link Administration Holdings Limited (ASX: LNK).
Link's share price plummeted almost 20% in a matter of days in early May. This big drop was probably due to a combination of factors.
Firstly, a capital raising the company announced in late April would have diluted the share price.
Secondly, Link admitted that it would be materially impacted by legislative changes concerning the treatment of inactive superannuation accounts announced by the government in this year's Federal Budget.
The proposed changes wouldn't be implemented until 1 July 2019, and Link estimated the negative financial impact on its FY20 revenues to be approximately $55 million based on April 2018 data.
To put this into some sort of perspective, that would represent about 7% of Link's total FY17 revenues of $780 million. So it's no wonder investors jumped ship.
Bravura has also outperformed fellow mid-cap superannuation software provider HUB24 Ltd (ASX:HUB). Overall, HUB24's share price is up almost 60% over the last 12 months, although its performance could have been a lot better.
HUB24's share price took a battering in July and has shed almost 30% of its value since July 19, down from $14.45 to trade at $10.56 at the time of writing.
Investors seem to be wary that big players in the banking sector that offer similar superannuation platforms, like Westpac Banking Corp (ASX: WBC), might instigate a price war. This could severely dampen the margins of smaller companies like HUB24 or Praemium Ltd (ASX: PPS).
Foolish takeaway
So far this has been Bravura's year. The company seems immune to the forces that have negatively impacted its competitors, like legislative changes or threats from larger competitors.
While this doesn't mean that Bravura will be able to shrug off these challenges forever, I still think that its recent impressive performance could lay the foundation for longer-term growth.
