MENU

Is the Class share price a buy?

The Class Ltd (ASX: CL1) share price has fallen 2.94% to $1.48 following the release of the financial software services provider’s interim results on Thursday.

For the half-year ended 31 December 2018, Class grew operating revenue by 12% to $19.0 million with earnings before interest, tax, depreciation and amortisation up 11% to $8.6 million. The company’s annualised recurring revenue, which is the number of accounts at the end of the period multiplied by average revenue per user rose 10% to $37.1 million.

On the bottom line, the company reported a 2% rise in net profit after tax to $4.4 million. The subdued growth in net profit was attributed to a significant $4.4 million investment ($3.3 million was capitalised) in product as Class intends to add new features to its software.

The growth rate of SMSF and Portfolio accounts added has noticeably slowed over the last couple of quarters. For the December half-year, Class added 4,799 net new accounts, bringing the total amount of accounts to 174,212. The growth in the number of accounts won has been stunted due to regulatory headwinds surrounding the sector and increased competition. Furthermore, AMP Limited (ASX: AMP) continues to migrate off the platform with approximately 2,150 funds suspended during the first half.

Class continues to increase its market share in the industry, with the company’s market share now at 28%, up 3% over the prior corresponding period. Pleasingly, 21% of new accounts added have been from other cloud products as Class continues to win market share from its competitors.

However, it should be noted that the costs of winning new customers have risen sharply. Customer acquisition costs (sales, marketing and implementation expenses divided by gross new accounts added) rose by 31% over the prior corresponding period to $177.

Foolish takeaway 

The Class share price has fallen 48% over the last 12 months as the company’s premium valuation multiple has shrunk due to the slowdown in new accounts added. Consensus FY19 and FY20 earnings per share have been revised downwards by 28% and 35% respectively over the last 12 months. Possible legislative changes regarding the refunding of imputation credits and its impact in the SMSF space is another issue that has been a concern for investors.

Class is currently trading for around 20 times trailing earnings. In light of the slowdown of new accounts added and the intensified competition in the sector, I am inclined to stay on the sidelines until there is a material change in the company’s circumstances.

JUST RELEASED: Our Top 3 Dividend Bets for 2019

NEW! The Motley Fool’s team of crack analysts has just released a timely report revealing the names and codes of their top 3 dividend share recommendations for 2019. Be among the first investors to get access—FREE, for a strictly limited time. You’ll discover the names of 3 hefty dividend paying companies with what our analysts consider to be solid growth prospects for the year ahead…

The first two currently offer fat, fully franked yields and the third is a surprising REIT offering you the chance to become a landlord with none of the hassle! If you’re looking for hot new ideas, look no further. But you do need to hurry. Snap up your free copy now, before supplies run out!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our top 3 dividend share recommendations right away.

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

5 ASX Stocks for Building Wealth After 50

I just read that Warren Buffett, the world’s best investor, made over 99% of his massive fortune after his 50th birthday.

It just goes to show you… it’s never too late to start securing your financial future.

And Motley Fool Chief Investment Advisor Scott Phillips just released a brand-new report that reveals five of our favourite ASX stocks for building wealth after 50.

– Each company boasts strong growth prospects over the next 3 to 5 years…

– Most importantly each pays a generous dividend, fully franked.

Simply click here to find out how you can claim your FREE copy of “5 ASX Stocks for Building Wealth After 50.”

See the stocks now