Iress (ASX:IRE) share price tips lower despite positive update

The company reveals a number of initiatives to drive its growth story and deliver improved shareholder returns

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Shares in Iress Ltd (ASX: IRE) are sliding today after the company announced a market update. At the time of writing, the Iress share price is trading at $12.40, down 3.05%.

The share trading system developer took the spotlight on Thursday after the company’s shares surged 16.80% higher on takeover rumours.

Driving growth and shareholder return

In today’s statement, Iress advised it had undergone a sweep of changes to accelerate its growth trajectory and enhance shareholder value.

The company has identified a broad range of initiatives spanning from its core technology and product offerings to superannuation services. A consistent theme across the initiatives was the focus on enhancing software-as-a-service capabilities and accelerating movement to its cloud-based products.

Additionally, the Iress board announced a potential divestment of its UK-based mortgage sales and origination (MSO) business.

Iress acquired the MSO business in 2013, building out its technology capabilities and transitioning the business to a recurring subscription model. In 2020, MSO delivered revenue of $26.9 million, 46% of which was recurring revenue.

The potential divestment comes under the rationale that a different owner could drive higher returns for the MSO business. The company noted that UK valuations for software businesses were at record highs. The intention would be to distribute surplus capital to shareholders if a sale occurred.

In addition, the announcement reaffirmed the company’s 2021 segment profit guidance of 7-10% growth on the prior year. This follows its FY21 net profit after tax upgrade announcement on 26 April.

Management commentary

Iress chair Roger Sharp commented on the initiatives:

Since being appointed in February, we have initiated a thorough review of the business with a view to accelerating growth and enhancing returns, with a specific focus on EPS and ROIC.

I am impressed by the quality of our business, the strength of our client relationships and the significant scale of our growth opportunities. Iress has a refreshed board, and new members of the management team to lead sales and product teams with a focus on enhancing product design and sales effectiveness.

We are executing well, with major projects going live in Australia and the UK. We are also committed to managing our capital efficiently and returning surplus capital to shareholders.

How has the Iress share price performed this year?

Iress is traditionally a slow-moving share with steady earnings and reliable dividends.

The Iress share price has spent most of this year trading around the $10 level until yesterday’s speculation rumours pushed it above the usual trading range.

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Kerry Sun has no position in any of the shares mentioned in this article. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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