The Motley Fool

Why the Class share price has fallen 12% today

The share price of financial software services provider Class Ltd (ASX: CL1) has fallen by around 12% to $1.28 in Thursday afternoon trade following the release of a quarterly update.

For the December 2018 quarter, Class announced that total accounts increased by 1,760 to 174,212 and the total amount of Class customers rose by 57 to 1,470. For comparative purposes, in the December 2017 quarter Class saw total accounts increase by 7,600 to 158,153 and total Class customers grow by 87 to 1,291.

Slowing growth 

For Class Super, the company gained 1,529 accounts (net of ~1,000 AMP suspensions) for the quarter bringing the total number of accounts to 167,631. The growth rate in new accounts was below expectations and Class has attributed that to regulatory uncertainty, an increase in competition and a lower number of average accounts from new customers.

The company noted that it was the second highest ever quarter for new customer additions, but the average number of accounts per new customer (~40) was lower than the usual amount from new customers wins.

Class intends to strengthen its Super product by introducing a number of new features to be released in the first quarter of 2019 that will drive an increase in automation and streamline the SMSF administration process for accountants.

The quarterly update also revealed that Class Portfolio grew to 6,581 accounts with 32% of Class Super customers now using Class Portfolio.

Class also reported that its annualised recurring revenue (ARR) from licence fees was $37.1 million at the end of December. This represents a 10.1% increase over the prior period that reflects the increase in the number of accounts and the company’s high customer retention rate of 99.2% (excluding AMP).

The company is also in the final stages of recruiting its new CEO, which it expects to announce to the market before the release of its interim results on February 14.

Foolish takeaway 

Today’s trading action has seen Class trade as low as $1.26, breaching its previous 52-week low of $1.345 in late December. The share price of Class has tumbled by 58% over the last 12 months as the market has adjusted to the slowdown of new accounts added with shares currently trading for around 18 times trailing earnings.

Possible legislative changes regarding the refunding of imputation credits and its impact on the SMSF industry is another issue investors have been weighing.

In light of today’s announcement, investors may want to consider looking at other fintech stocks such as Praemium Ltd (ASX: PPS) and Hub24 Ltd (ASX: HUB).

Motley Fool contributor Tim Katavic has no financial interest in any company mentioned. 

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Praemium Limited. The Motley Fool Australia owns shares of Class Limited. 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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