- Although down on last year, GBST's half year profit was better than we had expected.
- The win of a major new client – Japan's SBI Group – will deliver new growth in recurring licence income from FY19 onwards.
- Despite the heavy investment in core systems redevelopment, cash generation was strong and came in ahead of our forecast.
GBST Holdings (GBT) reported a first half net profit of A$2.5m, ahead of Morgans' forecasts, and re-affirmed guidance for full-year EBITDA in a range between A$20m to A$25m before strategic R&D costs, estimated in a range between A$10m and A$15m. After stripping out A$256k in one-off items, the result was well ahead of our expectations. Cash generated from operations (A$5.4m) was A$1.5m better than our forecast.
Several major new accounts were won in the half-year, including Japan's SBI Group.
Risks and catalysts
Potential near-term risks to GBST include:
- failure to win new clients for the Composer or ~Syn platforms;
- political and economic turmoil which undermines confidence among major wealth managers;
- unexpected loss of a major client; and
- further cost over-runs in the current software rebuild.
Potential near-term catalysts include:
- significant new client wins;
- stabilisation of demand for wealth management services; and
- the new software being delivered earlier or at a lower cost.
Despite the recent setbacks we believe that GBST is developing a global franchise as a supplier of core systems to large banks and wealth managers. Near term the stock may remain weak as doubts persist about the completion time and cost of the Composer 2.0 rebuild. The company is well capitalised and is able to fund its way through the near-term development costs from cash flows.
We retain our Add recommendation.
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Disclaimer(s): Analyst owns shares.
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