- Praemium (PPS) reported an underlying NPAT of A$1.94m for FY16, a significant improvement on the A$2.1m loss reported in the prior year. The result was ahead of our expectations of underlying NPAT of A$1.82m.
- Significant growth in funds under administration drove the 23 percent uplift in revenues that enabled the company to cross the break-even point at the group level.
- The company remains on track for another year of solid revenue growth and strong earnings growth in FY17.
Strong growth in funds under administration in FY16 drove Praemium to report its first true operating profit since listing. Rising profits in Australia and shrinking losses in the UK, helped by currency movements, drove the 4.0m NPAT turnaround. Australian EBITDA, pre-overheads, lifted 8% to A$8.9m. UK EBITDA losses shrunk from A$4.7m to A$3.4m. The company ended the year with A$10.4m in cash in the bank.
UK still the key to re-rating
The UK operation continues to improve. UK funds on the platform lifted 42% in local currency terms to £923m, with growth coming from the group's Smartfunds separately managed accounts service leading the way. The UK business now has a line of sight to cash flow break even.
Risks and catalysts
Near-term risks to Praemium include but are not limited to:
- loss of a major corporate customer;
- a major slowdown in the rate of asset growth in Australia or Britain; and
- major regulatory changes which reduce the appeal of Praemium software solutions to major customers.
Praemium offers investors exposure to the growth in funds under administration on the company's platforms in Australia and the UK. The company's separately managed account (SMA) technology is widely regarded as one of the best platforms available. The company trades on high multiples of FY17 earnings and thus needs to maintain a high level of revenue growth to sustain the current share price.
As the stock trades below our valuation, we maintain our Add recommendation.
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