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Will this ASX small cap darling reach new heights in 2019?

The Bravura Solutions Ltd (ASX: BVS) share price soared 116% over the 2018 calendar year, beating trendy ASX tech names like Afterpay Touch Group Ltd (ASX: APT), WiseTech Global Ltd (ASX: WTC) and Appen Ltd (ASX: APX) over the same period. In fact, the Bravura Solutions pocket rocket outperformed every WAAAX stock in 2018.

Bravura Solutions offers software solutions for wealth management, life insurance and fund administration industries. It’s been around for years.

So why did the Bravura Solutions share price soar in the first ten months of 2018?

To understand that, we should know a little about its background. Bravura was previously listed on the ASX until private equity firm Ironbridge Capital acquired it in October 2013 at a valuation of $172m. It re-listed in 2016 and now has a market capitalisation of over $800m, earning a place on the S&P/ASX 200. That’s the Bravura Solutions story in a very small nutshell.

Its rapid growth has been driven mainly by its flagship product Sonata, which now accounts for over half of the company’s revenues. Bravura is very much an international company, with operations in the UK, Australia, India and more.

The share price has faltered a little over the last two months, making investors wonder if its valuation is justified. It’s currently trading at a little over 30x earnings, which might sound expensive. However, good tech growth stocks are Ferraris, and a Ferrari isn’t priced the same as a Mazda.

Here are four reasons why I think 2019 will be another huge year for Bravura Solutions

1. Bravura is way ahead of the competition

I’ll admit I’m not an expert on wealth management software, but it’s no secret that Sonata is a first-class product. Sonata continues to win Bravura new clients, and Sonata revenue grew over 30% in the last financial year. Bravura’s competitors haven’t been keeping up, and it’s reasonable to assume that this is because their product isn’t as favoured by clients.

2. Its customers are sticky

Bravura has client contracts between 5 – 10 years, which makes its revenues a lot more stable. It’s also not very easy for its clients to switch to competitors, given that it requires a lot of time and money to change software platforms.

3. The industry is growing fast

According to PwC, global assets under management are set to almost double by 2025. This will continue to drive growth in the wealth management and fund administration industries, which Bravura services. Bravura looks to be in an ideal position to capture this growth.

4. Bravura continues to develop

Bravura is determined to keep its products at the top of the game, spending 13% of revenues on R&D in the 2018 financial year.

For these reasons, I believe Bravura justifies its valuation as a high growth stock with a strong competitive position in a growing industry. I view the recent pullback in the share price as a buying opportunity for Bravura Solutions.

Motley Fool contributor Cale Kalinowski has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, Bravura Solutions Ltd, and WiseTech Global. 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 Scott Phillips.

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