Things have gone from bad to worse for the Bravura Solutions Ltd (ASX: BVS) share price on Thursday. Prior to today, the struggling financial technology company's shares were down 53% over the last 12 months.
Today, the Bravura share price has gone one better, losing more than half of its value again shortly after the open. In early trade, the company's shares are down 59% to a record low of 54 cents.
Why is the Bravura share price crashing again?
Investors have been hitting the sell button in a panic today after the company released a very disappointing update after the market close on Wednesday.
Following a strategic review, Bravura revealed that the company needed to be "reconfigured." It explained:
The review has indicated that whilst Bravura has solid foundations, the business will be required to be reconfigured to scale our products across customers. This will require enhancing the existing technology stack to unlock the existing microservices strategy, drive higher resale multiples on technology development and reduce single customer efforts.
The pace of change from a traditional services model to a more scalable technology solutions provider will accelerate but requires a realignment of the organisation and resources to create greater product discipline. This will deliver efficiencies and support a greater focus on spend, project execution and key account management. Several key appointments to drive technology, project delivery and go-to-market capability are in progress.
Guidance misses by a mile
Unsurprisingly, given the above, the company's guidance for FY 2023 has fallen well short of expectations.
This is due to its customers adopting a cautious approach to spending, the winding down of three legacy contracts, and a sizeable 16% to 20% increase in operating costs.
The sum of the above, is as follows:
The cumulative impact of the factors discussed above, and allowing for additional costs associated with one off initiatives from the Strategic Review, is that Bravura is expecting its FY23 earnings to differ materially from analysts' consensus forecasts.
With modest revenue growth of between $270 to $275 million, and increase in the FY23 cost base, Bravura now expects to deliver EBITDA of between $10 and $15 million and NPAT to be within the range of ($5M) to $0. The H1 result is expected to reflect lower run rate revenue which is expected to build into the second half, however, costs are expected to remain broadly consistent across the year.
Broker 'surprise'
The team at Goldman Sachs was taken by surprise by this update. It commented:
We had previously flagged ongoing risk to Bravura's earnings outlook (here and here) from 1) wage inflation; 2) higher cost investment to execute on strategic priorities; and 3) pressure on the dividend due to softer cash flow. That said, Bravura's update came as a surprise given the extent of cost investment, both from organisational change and BAU wage pressures, and in the context of commentary at the FY22 result suggesting 1H23 EBITDA would be consistent with the 2H22 run-rate (anchoring consensus to mid-40's EBITDA).
Unfortunately, the broker believes it could take some time until the company is back to its best. It concludes:
[I]n our view this is likely to take several years of heightened investment (with significant execution risk) and we look to further clarity on timing for a resumption in earnings growth, particularly given commentary regarding competing forces in FY24 from expected cost efficiencies on one hand and revenue headwinds in EMEA on the other.
