What Made This ASX 200 Listed Tech Share Price Drop Today – Bravura?

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What Made This ASX 200 Listed Tech Share Price Drop Today – Bravura?

 What Made This ASX 200 Listed Tech Share Price Drop Today – Bravura?

Summary

  • While Bravura Solutions delivered impressive FY2020 results, its share price could not perform well on ASX, tumbling over 13% by the end of the session.
  • The Company’s FY2021 outlook might have impacted the optimism level of the market participants. Due to the prevailing market uncertainty, the Company expects its NPAT to remain flat during FY2021.
  • FY2020 group revenue was up 6% while EBITDA and NPAT posted considerable growth of 19% and 22%, respectively.
  • The Company has a robust financial position with net cash of A$99.1 million by the end of FY2020.
  • Bravura has market opportunities in Digital solutions, Automation and Microservices ecosystems.

ASX 200 listed Company, Bravura Solutions Limited (ASX:BVS) announced its FY2020 results today, highlighting another year of growth along with continued operating leverage expansion. Bravura completed the acquisition of Midwinter and FinoComp during the period. The acquired companies have enhanced BVS’ overall strategy.

Despite Bravura’s impressive performance, BVS shares could not perform well on the ASX. By the end of the day’s trade, BVS share price stood at A$3.740, down 13.426% from the previous close. The Company has a market cap of A$1.06 billion and around 244.34 million outstanding shares.

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In this article, we would look at Bravura’s FY2020 results and try to understand the reason for the significant drop in the share price. Let us have a glance at the Company first.

About Bravura Solutions Limited

ASX200 member Bravura Solutions Limited is a provider of software products and services that functions in the wealth management and funds administration industries. The solutions offered by the Company are supported by functionally rich technology that allows modernisation, consolidation, and simplification. The software provided by Bravura Solutions enables its clients to increase speed to market, provide a seamless digital experience & address continuing changes in financial services regulation.

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FY2020 Result:

During FY2020, BVS was successful in achieving its guidance. The Company built on its impressive performance in the previous year and reported robust FY2020 numbers.

  • Group revenue, which was A$257.7 million in FY2019, rose to A$274.2 million in FY2020, up 6%.
  • Group FY2020 EBITDA was up 19% at A$57.8 million.
  • Group FY2020 NPAT grew 22% to A$40.1 million. Acquisitions provided NPAT of A$3.0 million.
  • Group EBITDA margin, which was 18.8% in FY2019, increased to 21.1% in FY2020, indicating continual operating leverage expansion.
  • Group FY2020 EPS rose by 10% to 16.5cps.
  • An unfranked final dividend of 5.5cps was declared, thus, bringing the full-year payout ratio to 67% of FY2020 NPAT.

Impact of COVID-19:

During the COVID-19 pandemic, Bravura was well equipped to manage the change to remote working entirely as a major portion of the products and services offered are delivered remotely. The Company implemented an effective contingency plan which led to constant support for current clients without disruption.

The smooth transition to remote working enabled the implementation of a technology solution that allowed Bravura clients to bulk manage the inflow of early release of superannuation requests in response to COVID-19 legislative changes in Australia. The present sales opportunities continue to progress, although there was a lengthening of the sales cycle.

Investment During FY2020:

Bravura’s continued investment has positioned it as a technology leader. The sales pipeline remains strong and continues to grow with considerable opportunities across all major markets. BVS, along with its existing clients, continued to develop the Sonata offering with research and development more than A$36 million which was invested across the product suite.

Further, Bravura’s compelling value proposition, supported by an ecosystem of microservices, digital solutions and automation offerings, help the clients in an increasingly remote engagement world and also assist in their regulatory compliance and cost management.

Market Opportunities:

  • Digital solutions: The Company experienced an increase in demand for enhanced digital solutions across its product suite due to COVID-19, from adviser through to core registry, that let financial institutions to communicate digitally with their end clients.
  • Automation: The financial services industry remains to seek operational competencies which include reduced dependence on manual processes and outsourcing.
  • Microservices ecosystems: Microservices are self-contained software that performs single functions and can be linked to all registry offerings. Although the sales value is smaller, these solutions can be implemented quickly and have more chances for each microservice. The market continues to progress towards executing an ecosystem of microservices across core registry offerings.

Solid Financial Position:

  • Operating cash flow during FY2020 was A$32.4 million, which reflects a cash conversion of 56%. The cash conversion was driven by considerable early payments obtained in the prior period.
  • Trade receivable declined A$23.8 million as on 31 July 2020.
  • BVS maintained a robust financial position with net cash of A$99.1 million at the end of 30 June 2020.

Wealth Management Performance:

Image Source: BVS ASX report

Funds Administration Performance:

Funds Administration revenue increased from A$80.9 million to A$93.8 million. Funds Administration EBITDA grew 33% to A$43 million as compared to the previous corresponding period.

Image Source: BVS ASX Update

Market Outlook:

BVS has a Large Addressable Market: The product functionality of BVS supports the pensions, life insurance, investment products, wrap platform markets, along with financial advice across major markets such as Australia, New Zealand, the UK and South Africa where there are a large number of financial services companies. Organisations in these markets are still running numerous legacy or competitor systems which have resulted in increased cost structures. It leads to a lack of product flexibility, difficulty in reacting swiftly to changes in regulatory regimes, and delay in meeting the evolving needs of the existing digital world.

Market Opportunities: The solutions offered by the Company are innovative and are best-in-class that provides these financial services businesses mission-critical infrastructure. Also, the Company is well placed to meet the market demand for digital solutions, automation and microservices ecosystems. Further, Bravura is accelerating its investment towards the research and development to meet the expected demand.

Strong Sales Pipeline: Bravura has a strong sales pipeline across its key markets and its geographic regions which have established financial institutions. The increase in the market uncertainty due to COVID-19 provides opportunities for BVS around digital, automation and microservices ecosystems.

FY2021 Outlook:

Though the new sales pipeline is impressive, there is significant uncertainty concerning the timing of deal closures as compared to the previous year due to the existing COVID-19 pandemic. Hence, the Company feels that its NPAT in FY2021 would remain flat as compared to FY2020.

Conclusion:

Despite the solid result and positive outlook, there still exists uncertainty related to COVID-19. In a recent World Economic Outlook Update released by the International Monetary Fund during June 2020, it was pointed that the global growth in 2020 is expected to be -4.9%, which is 1.9% points below the April 2020 World Economic Outlook. Also, in 2021 global growth is estimated at 5.4%. Overall, this would leave 2021 GDP some 6.5 percentage points below the pre-COVID-19 forecasts of January 2020.

It appears that the BVS share price has been weighed down by the FY2021 outlook highlighted by Bravura coupled with the bleak IMF update, despite the impressive results in these challenging times.

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