The Bravura Solutions Ltd (ASX: BVS) share price has jumped 7% at the time of writing after the software provider released HY21 results that were in line with previous guidance.
Bravura develops enterprise software for the wealth management and funds administration industries. It offers its flagship product, Sonata as a unified solution which consolidates multiple legacy IT systems.
Current operating conditions
Complications arising from the COVID-19 pandemic continues to be an ongoing headwind for Bravura. While operations in Australia and New Zealand have been relatively unaffected, the same unfortunately can’t be said for the UK, where much of the company’s revenue is generated.
The uncertainty surrounding the pandemic has resulted in companies that would typically embark on new transformational programs being much more reluctant in their spending. As such, there has been a material drop in new client deals and the sales cycle has been significantly lengthened.
The numbers
Bravura’s wealth management segment was hardest hit, reporting a drop in revenue and EBITDA of 17% and 29%, respectively, which was mainly attributable to the slow down in the UK.
Its funds administration segment fared slightly better, with revenue and EBITDA down 8% and 14%, respectively. Bravura noted this result was partly impacted by lower licence fees during the period due to the timing of renewals and new sales.
Across the group, total revenue came in at $115.7 million, a decrease of 14% against the prior corresponding period (pcp). Net profit after tax (NPAT) was down 54% to $9 million, compared to $19.8 million in the first half of FY20.
It’s worth noting that these results were more or less expected by the market as they were within guidance, which would explain why the Bravura share price hasn’t moved south today.
The value from Bravura’s Delta acquisition last year is yet to be fully realised, but management has indicated that revenue growth is expected to be in the range of 20-30% in FY21, which will be underpinned by the demand in the UK pensions market.
Bravura declared an interim dividend of 2.6 cents per share, unfranked, which brings the dividend payout ratio to 70% of first-half NPAT.
Future growth drivers
Management has emphasised that one of its primary commercial strategies is to grow its recurring revenue base.
Despite the challenging conditions, contracted recurring revenue, which comprises maintenance, hosting, cloud and software-as-a-service (SaaS), was up 8% in the half compared to pcp. Attached recurring revenue, which is made up of in-production professional services from ongoing client demand, declined 8% due to market uncertainty.
While COVID-19 presents itself as an ongoing challenge, management appears optimistic about the future. According to management, the acceleration in digital transformation brought about by the pandemic will play to the company’s advantage through an increased demand for SaaS, microservices, cloud and subscription-based services.
Management anticipates a strong rebound as the world continues to push through a vaccine-led economic recovery. It also believes the company will emerge stronger with a larger total addressable market (TAM) through the continued rollout of its modular product ecosystem.
Bravura was profitable across the half-year period on an operating cash flow basis, and had $56.4 million of cash as of 31 December 2020.
FY21 guidance and summary
While COVID-19 continues to impact the business in the UK and South Africa, management anticipates this will continue to have a negative effect on the sales cycle and new client deals.
However, management has indicated that the sales pipeline is strong. Bravura anticipates delivering revenue growth from 1H21 to 2H21 in excess of 10% and achieving FY21 NPAT between $32 million and $35 million.
Bravura’s share price chart over the last year paints a bleak picture. However, if management is correct in its outlook and this downturn is temporary, I think Bravura’s shares are looking quite appealing at current levels.
