Praemium (PPS) is off to a strong start for FY18, reporting record gross inflows to its separately managed account platform in the September quarter. PPS reported a 31% year-on-year increase in funds on platform (FOP) to A$6.6bn. Gross inflows in the quarter totalled A$749m, 35% higher than the former record inflows set in Q4 FY17. Net inflows were A$547m, 28% above that of the previous quarter. Large inflows from a major Australian back client assisted in achieving the record result. Net inflows from most of its 200+ financial planner client firms were strong across the board, reflecting the popularity of the SMA product among planners and their clients. UK funds on platform grew 34% to GBP1.3bn, edging closer to cash-flow break-even.
No change to forecasts
While the quarterly inflows were higher than Morgans' forecast, we are not upgrading our revenue and earnings forecasts for Praemium at this time. The company has foreshadowed rising investment in sales and marketing and technology, and timing of this ramp-up is difficult to predict.
Risks and catalysts
Near-term risks to Praemium achieving our valuation and price target include but are not limited to:
- loss of a major V-wrap or SMA account customer;
- a major slowdown in the rate of asset growth in Britain; and
- major regulatory changes which reduce the appeal of Praemium software solutions to major customers.
Potential near-term catalysts include:
- continued strong growth in funds on platform;
- major new V-wrap or SMA customer wins; and
- purchase of another SIPP account manager in the UK, adding scale economies to the UK business.
Praemium's 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 retain our Add recommendation.
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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.