Class Limited makes $4 million investment in rapidly growing managed account services

On Tuesday, 5 March 2019, Class Limited (ASX: CL1) announced the investment of $4 million in Managed Discretionary Account (MDA) services with Philo Capital Advisers. The investment is decided to be made via convertible notes with an initial tranche $1.5 million and an investment of further $2.5 million by 31 March 2020, subject to the satisfaction of certain conditions.

The technology player, Class Limited, will reportedly provide software to support Philo’s service offerings that enable financial advisory groups to provide MDA services through its existing investment and superannuation platforms to create better, more streamlined solutions for their clients.

Glenn Poynton, Strategic Alliances Director at Class, stated that “The partnership with Philo is an important strategic step for Class into the broader wealth management space. Class and Philo are well aligned, both delivering highly differentiated services that enable client firms to provide better business and investor outcomes.”

Philo Capital Advisers is in the consultancy business primarily including the provision of managed account services to financial services firms. It has developed MDA services for licensees that will use BT Panorama, with other leading investment platforms to be available in the future.

The company informed that the convertible notes are expected to convert into equity on the basis of valuation relating to the growth of Philo. Further, Class retains the option to increase its equity ownership to 100% in the long-run while the Philo senior management team will reportedly remain shareholders in Philo over the medium term and incentivised to grow the business.

Brett Sanders, Director Principal at Philo, stated: “Philo has significant experience in helping advice practices design and implements managed account services. The investment by, and its collaboration with Class, will significantly accelerate growth to make Philo an even more attractive partner to advisory groups, platforms, asset consultants and investment managers.”

Recently, Class Limited announced the appointment of Andrew Russell to the role of Chief Executive Officer and Managing Director of the company. Mr Russell has led the senior executive positions in Financial Sector companies specialising in the development of corporate strategy, sales leadership and market penetration.

However, Mr Russell’s commencement date has been scheduled to be early May 2019.

For the half year ended 31 December 2018, the Group posted a growth of 12% in sales revenue to $19 million on the back of increased market share, world class retention rates of 99.2% and a growing Annualised Recurring Revenue (ARR) of $37.1 million.

On bottom line front, Class’ Net Profit After Tax stood at $4.4 million, up 2% on prior corresponding period. The diluted EPS was 3.70 cents and an interim dividend was 2.5 cents per share, fully franked, payable on 19 March 2019.

At 31 December 2018, Class had a total of 174,212 accounts including 167,631 Self-managed Super Funds (SMSFs) on the Class Super product.

CL1 stock price edged up by 0.68% to close at $1.480 on 5 March 2019. The stock last traded at a Price to Earnings multiple of 19.730 x with a market capitalisation of $172.96 million. Over the past 12 months, CL1 has fallen by 47.31% including a negative price change of 19.01% in the past three months.

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