Praemium beats broker forecasts and continues strong earnings growth

By Trevor Hoey. Published at Aug 13, 2018, in Features

Name: Praemium (ASX:PPS)

Market Capitalisation: $358 million

Share Price: 89.5 cents

Provider of IT solutions and platforms to the financial services industry, Praemium (ASX:PPS) has delivered strong growth in funds under administration, revenues and underlying earnings in fiscal 2018.

The key takeaways with regards to its fiscal 2018 performance were a 50 per cent increase in gross asset inflows to $3 billion, a 35 per cent increase in funds under administration which hit a record $8.3 billion and underlying earnings of $8.8 million, representing an increase of 40 per cent on fiscal 2017.

As indicated below, this represents a continuation of what has been a rapid period of growth and astute execution over the last five years.

Praemium has a prominent market presence in the provision of investment administration, Separately Managed Account (SMA) and financial planning technology platforms.

It does remain a speculative stock, so investors should still take a cautious approach to any investment decision made with regard to this stock.

The company administers in excess of 475,000 investor accounts covering approximately $110 billion in funds globally, and currently provides services to over 700 financial institutions and intermediaries, including some of the world’s largest financial institutions.

Harking back to the key numbers, it is also worth noting that underlying earnings of $8.8 million were 10 per cent ahead of the expectations of analysts at Morgans. Both Morgans and Bell Potter like the stock with the latter having recently increased its 12 month share price target from $1.18 to $1.38, a premium of more than 50 per cent to Friday’s closing price.

Of course, it should be noted that broker projections and price targets are only estimates and may not be met. Those considering this stock should seek independent financial advice.

Operational developments

A key development in terms of Praemium’s global expansion was the receipt of regulatory approval to sell the company’s Smartfund range of funds directly to the United Arab Emirates (UAE) markets.

UK revenue and other income grew 27 per cent, resulting in a 22 per cent reduction in EBITDA losses to $1.7 million.

Funds under administration (FUA) in the UK were up 20 per cent over last year to $2.7 billion, with assets managed by Smart Investment Management up 15% to $794 million.

Gross inflows in FY2018 of £434 million ($775 million) were 13% higher than FY2017.

Regulatory changes should favour Praemium

Management said that it expects further opportunities to expand the business, particularly with the advent of the Royal Commission as firms seek to reduce risk and move away from providing both advice and product.

The managed account segment of the platform market is now growing quickly and the company’s depth of experience and expertise in this area provides it with an opportunity to increase market share.

The company also noted that it had completed two regulatory initiatives, to adhere to MiFID II and GDPR regulations, further strengthening its position as a fully compliant, efficient and sophisticated platform for key international markets.

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