IRESS: Merger bonus
About the author:
- Author name:
- By Ivor Ries
- Job title:
- Senior Analyst
- Date posted:
- 03 December 2019, 2:30 PM
- Sectors Covered:
- Information Technology, Online Media
- Mergers between major industry superannuation funds continue to work in favour
of IRESS’ Acurity administration system.
- The proposed Tasplan-MTAA merger will be modestly accretive to IRESS’
revenues and earnings in our view.
- The merger will increase total funds administered on the Acurity platform to more
than A$250 billion.
- Our DCF valuation, which drives our share price target, increases (Morgans clients can login to view detailed reports and price targets).
- We maintain an ADD recommendation.
Industry consolidation working in favour
The planned merger of industry superannuation funds Tasplan and MTAA, announced
last week, is positive news for IRESS.
Under the merger plan the back offices of both
industry funds will be consolidated on a single technology platform, which is IRESS’
Acurity administration system.
IRESS will earn additional license fees once the funds are
migrated. We estimate that the merger will be mildly earnings accretive to IRESS from
To date, industry consolidation among industry funds has mostly worked in favour
of IRESS’ low cost and highly-automated system.
Upgrade to forecasts, valuation
We have upgraded our forecasts and valuation to reflect incremental revenues from the
We assume ~A$6m in incremental license and service revenues,
a gross profit margin of ~60%, and higher D&A expenses as some development costs are
absorbed. Our assumptions result in recurring EPS increasing ~1.7%.
Our DCF valuation,
which drives our share price target, lifts (Morgans clients can login to view detailed reports and price targets).
Risks and catalysts
Risks to IRESS earnings and share price include:
- Disruptions to global financial
- Irrational competitor behaviour
- Loss of major clients
- External attacks
on the company’s systems.
Potential re-rating catalysts include:
- Major new client wins
- Value-accretive acquisitions
IRESS offers investors exposure to the global markets for financial market data and
The company is a core systems provider and, with most of its revenues from
recurring license fees, its revenues are less volatile than its customer base would suggest.
As our price target implies a total shareholder return of greater than 10%, we maintain an
Morgans clients can login to view our detailed report and share price target for IRES (IRE). Alternatively, please contact your Morgans adviser or nearest Morgans office for access.
Disclaimer: Analyst owns shares. 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.