Sharemarket and wealth management systems provider Iress Ltd (ASX: IRE) has long been considered a high-quality stock by many investors. This title has partly been bestowed thanks to the significant market share of its core products, but also due to the sticky and recurring nature of its revenues, its impressive margins and the growth rates the company has achieved.
These attributes and performance have led to a strongly performing share price which has increased by 258% in the past decade; in comparison the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has increased by just 61.5%.
With a financial-year end of 31 December, investors will soon get the opportunity to review IRESS' full-year results and importantly get the first look at how the firm's recent acquisition is performing.
Growth Strategy
In August 2013 IRESS announced the acquisition of Avelo Financial Services for £210 million. It's a leading UK technology provider of wealth management and enterprise solutions. Avelo boasts revenues of nearly £60 million and a leading market share in wealth management with over 60,000 financial adviser and broker clients.
The acquisition has allowed IRESS to immediately establish a market-leading revenue footprint in the UK, thereby significantly diversifying IRESS' geographic and sector exposure.
Outlook
According to management at the time of the Avelo acquisition, Avelo was expected to be 10% accretive to earnings in 2014. To partly fund the acquisition of Avelo, IRESS undertook an entitlement offer for shareholders in September which was priced at $7.15. With the stock currently trading at $9.49 the market would appear to have cheered on the growth strategy.
IRESS has proven incredibly successful in Australia, but importantly also successful in its previous offshore expansions into Canada and South Africa. The immediate UK footprint that the Avelo acquisition has provided could potentially allow IRESS to replicate its Australian success in the much larger UK market.
Foolish takeaway
With the ASX Ltd (ASX: ASX) sitting on IRESS' share register with a near 20% holding there has always been murmurings about the potential for a takeover. The stock trades on a lofty multiple which reflects the market's view that the growth prospects for IRESS are strong, however the high price could be an obstacle not only to a takeover by the ASX but also for investors keen to own this high-quality company.
