The Class Ltd (ASX: CL1) share price could be a good idea after its reporting its FY21 result.
Class’ FY21 result
The cloud accounting provider for the self-managed super fund (SMSF) industry saw record revenue of $54.9 million, an increase of 25% compared to FY20. This was ahead of guidance.
The customer base surged higher 123% after its acquisitions of SmartCorp and ReckonDocs. The Class retention rate was 99.1%, which is very high.
Total accounts on the Class system grew from 187,254 to 190,466. The growth was driven by Class Trust and Class Portfolio, though Class Super saw a slight rise too.
Its ‘roll forward’ revenue was $59.8 million, an increase of 21.5%. That suggests that there is another 9% revenue growth for FY22 baked in already.
As guided, Class maintained its underlying EBITDA (EBITDA explained) margin at 40%, in line with guidance. The company saw underlying EBITDA grow by 15% to $21.9 million.
However, statutory net profit fell by 46% to $3.7 million. This included a net loss of $3.2 million for Philo Capital.
In 2019 it made an investment in Philo of $3.1 million through a convertible note before the ‘reimagination’ strategy was introduced by the CEO Andrew Russell in 2019. Class has decided it is not going to continue to invest in Philo. The company said it was reviewing its options to either convert or redeem this note. It was expected there would be a shortfall of around $3 million, which would reflect this fair value negative change.
Class declared a final dividend of 2.5 cents per share, bringing the full year dividend to 5 cents per share. That was the same as last year.
Topdocs acquisition
Class announced the acquisition of legal documentation software provider, Topdocs, for an enterprise value of $13 million.
It will cost Class $11.7 million in cash and $1.3 million in Class shares.
This is expected to add to earnings in FY22, with an estimated revenue contribution of $3 million in this financial year.
Topdocs provides SMSF, corporate, and trust documentation to accountants, financial planners, lawyers and other professional advisers.
Class said that its product suite is a natural and complementary fit for Class and its services will be incorporated into Class’ NowInfinity platform.
This deal will grow Class’ market leadership to 18% of the document and corporate compliance market.
Outlook for Class and the share price
Class says it’s growing into wealth accounting technology solutions business. It continues to pursue its 3-year strategy and improve efficiencies for clients.
The company also mentioned that it’s exploring new adjacencies and offshore expansion to further grow its total addressable market.
I think that Class has a promising future. It doesn’t have an incredible global growth story (yet?), but the valuation doesn’t seem demanding either. CommSec puts the FY22 price/earnings ratio at 28.
