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Why the Iress (ASX:IRE) share price surged 16% yesterday

Shares in Iress Limited (ASX: IRE) finished 16.8% higher yesterday after talks of an investment bank looking to buy in. Here's what happened.

Shares in financial services software company Iress Limited (ASX: IRE) finished 16.8% higher yesterday after talks of an investment bank looking to buy shares.

Despite yesterday’s jump, Iress’ shares are still trading just below their pre-COVID levels.

IRE share price

Source: Rask Media IRE 1-year share price chart

What does Iress do?

Iress is a global technology company that provides software to the financial services industry. It caters to over 500,000 users, 9000 clients and operates in nine countries.

Xplan is one of its most well-known products, which is commonly used in the financial planning and wealth management industry. Using Xplan, administration times can be reduced allowing businesses to spend more time with their clients.

Investment rumours

According to an article out of the Australian Financial Review yesterday, investment bank BarrenJoey has apparently been looking to buy Iress shares on behalf of a financial sponsor client.

Not too much information was revealed, but sources say it was trying to attain as large as a 10% stake in the company.

Iress responded to the article shortly after, but noted it had not received any direct approach. As such, it couldn’t comment any further on the matter.

How has the business been travelling

Iress last updated the market in April, which provided some details into how the business had been performing over Q1.

Across the period, pro forma revenue was flat at $148.1 million, but pro forma net profit after tax (NPAT) had jumped 11%.

Pro forma figures exclude things like currency movements and annual leave costs related to COVID-19.

Recurring revenue as a proportion of total revenue has been growing steadily over the past several years and now makes up over 90%.

Time to buy Iress shares?

Iress definitely has some attractive features that I’d typically look out for. Increasing recurring revenues would suggest that it has sticky customers that would face switching costs if they were to move to an alternative product.

Learning new software can be time-consuming, and this would be even more challenging in client-focused roles such as financial planning and wealth management.

Looking at the industry more broadly, Iress could stand to benefit from further structural changes such as increased regulation, more complex business needs and a continued shift towards digital delivery of services.

Structural shifts such as these are good examples of things we look for as part of the Rask investment philosophy.

For more reading, I’d recommend signing up for a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.

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