CoFunds client transfer should boost confidence
GBST Holdings (GBT) recently completed the transfer of 400,000 customer accounts worth £37b from a legacy technology system to its Composer wealth management system on behalf of its largest UK client, Aegon Group. The transfer of accounts from the former CoFunds platform to Composer was on budget and completed just one month behind the original schedule. This is an outstanding outcome compared to other platform technology conversions attempted in the UK in recent times.
No change to forecasts but risks remain
There are no changes to our forecasts as Aegon revenues were already included in our estimates. In our view there remains some short-term earnings risk in GBT due to the unpredictable nature of timing of payments for the Composer 2.0 rebuild. GBT's FY18 guidance is for pre-Composer operating EBITDA in a range of A$20m to A$25m and for software development costs of A$10m to A$15m, leaving a wide range of potential reported EBITDA outcomes.
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 Composer 2.0 software rebuild.
Potential near-term catalysts include;
- Significant new client wins;
- Stabilisation of demand for wealth management services, and;
- The new software being delivered early or at a lower cost.
Despite the recent setbacks we believe that GBST Holdings 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 able to fund its way through the near-term development costs with cash flows.
We retain our Add recommendation.
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Disclaimer(s): Analyst owns shares.
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