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Why the Iress share price is climbing higher today

The share price of financial services business Iress Ltd (ASX:IRE) has risen 5.6% to $13.10 following the release of the company’s financial results for the year ended 31 December 2018 on Thursday.

Below is a summary of the results with comparisons to the prior corresponding period.

  • Group revenue rose 8% to $464.6 million (up 6% at constant currency)
  • Group segment profit increased 10% to $137.7 million (up 8% at constant currency)
  • Net profit after tax was up 7% to $64.1 million
  • Earnings per share rose 6% to 37.6 cents
  • Full year dividend increased 5% to 46 cents per share
  • Final dividend of 30 cents per share declared (40% franked).

Overall, this was a solid result for Iress. The main drivers of growth were from Australia and New Zealand Wealth Management and the company’s United Kingdom business.

The Australia and New Zealand Wealth Management segment saw operating revenue rise 9% to $136.4 million and direct contribution was up 7% to $100.7 million. Despite a background of increased regulatory focus, the division was able to grow earnings due to strong demand for wealth, data analytics and superannuation solutions.

The United Kingdom business saw operating revenue increase 7% to £66.7 million and direct contribution rise 11% to £43.9 million. The growth was underpinned by a number of key client projects. Furthermore, the company noted that it does not expect a significant direct impact from Brexit as its UK client base primarily has a domestic focus.

The report was not entirely positive, as the direct contribution from the company’s second largest segment Asia Pacific Financial Markets fell 3% 81.6 million. Revenues were essentially flat and margins contracted after being impacted by higher market data and an increase in people costs.

Nevertheless, the growth from the company’s other segments managed to offset the decline with group segment profit up 8% at constant currency, exceeding the company’s guidance of 3%-7% segment profit growth.

Outlook

Looking forward, Iress expects reported segment profit growth in 2019 to be between 6% and 11% ($146 million – $153 million) at constant currency including the impact of adopting AASB 16 which will boost its bottom line. Excluding this impact, underlying segment profit growth is expected to be between 3% and 8% ($142 million – $149 million).

The company also expects non-operating costs to be significantly lower in 2019 compared to 2018, excluding any further acquisitions. Management has attributed this drop to the targeted and elevated investment that has been spent in recent years. Furthermore, Iress expects its 2019 franking percentage to be around 10% before returning to a more normalised level of between 30% and 40%.

Whilst Iress does not offer the growth prospects of other fintech stocks such as Afterpay Touch Group Ltd (ASX:APT) and Netwealth Group Ltd (ASX:NWL), it is certainly a solid business worthy of consideration in one’s portfolio.

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Motley Fool contributor Tim Katavic has no financial interest in any company mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO and Netwealth. The Motley Fool Australia has recommended IRESS 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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