High-flying StatPro still undervalued?

StatPro is on the verge of something big. The market believes it - that's why the shares have rocketed this year. With the financial industry caught up in lashings of red tape, the demand for easy, cheap and efficient cloud-based data analytics is on the rise.

With nine months of its financial year gone, we've just heard that StatPro's earnings are on track to hit expectations, with annualised recurring revenue from its StatPro Revolution portfolio analysis tools up 81% at £14.7 million since 30 September 2015. Its Investor Analytics risk service acquired in January has been a big help.

With the £70 million firm's share price surging two-thirds this year, they now trade on a lofty price/earnings (PE) multiple of 32 times, falling to 26 and 21 over the next two years.

Those valuations aren't uncommon in high-growth tech companies, and here the price is underpinned by forecast 2016 earnings per share (EPS) growth of 17%, rising to 24% for each of the next two years, according to Panmure Gordon analyst Sanjay Jha. The shares are a flashing 'buy' for the analyst, who thinks they could be worth another 47% at 159p.

"An attractive enterprise value/sales valuation of 1.7x, a dividend payer with an attractive yield and a shift in gear around performance says StatPro is going somewhere," says Jha.

"The shares offer outstanding value compared with an average rating of 2.8x for UK Fintech stocks."

And he may be onto something.

In the business of portfolio analytics for 22 years, StatPro launched the industry's first cloud-based portfolio analytics programme, StatPro Revolution. It now contributes nearly 40% of total average recurring revenue.

StatPro also has a Composites product, part of StatPro Seven, which was the first platform built for compliance to Global Investment Performance Standards, a Fixed Income division and Risk Management business.

The 'game-changer'

Against a backdrop of increasing demands from regulators and customers, the launch of the new cloud-based Revolution Performance should accelerate this cloud transition and could be the "game-changer", says Jha.

Allowing asset managers to measure performance and manage data more simply and efficiently, the new software cuts the time it takes to analyse data from days and months to just hours and minutes. Having the ability to automatically scale up to handle larger data volumes, managers can actually chose how long the calculations take and should lead to real productivity gains. This could convert many Seven customers.

StatPro's top six shareholders own nearly 69% of the company"With clear technology and cost leadership over competing performance systems, this new service represents a great opportunity for client upselling and attracting new customers, and underpins our growth forecast for StatPro over the 2016-2018 period," explains the analyst.

He predicts pre-tax profit will jump by a third to £3.2 million in 2016 on revenue of £35.5 million - up 18%. Sales growth is then expected to slow to single digits, but profit is tipped to hit £3.9 million in 2017 and £4.8 million the year after.

StatPro's top six shareholders own nearly 69% of the company. Boss Justin Wheatley and non-executive director Mark Adorian have the largest director shareholdings, worth £8 million and £3.2 million respectively.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.