Financial software services business GBST Holdings Limited (ASX: GBT) this morning posted a net profit of $6.9 million on $55.7 million of revenue for the six-month period ending December 31, 2014. The net profit and revenue were up 58% and 14% respectively on the prior corresponding period (pcp).
Earnings per share were up 58% to 10.4 cents per share and the interim dividend was up 25% to 5 cents, compared to the pcp. The company has no debt and held $2.8 million cash at year end. Impressive.
Global opportunities
GBST is similar to big brother Iress Ltd (ASX: IRE) in providing software solutions to the complex operational back office needs of fund managers, brokers, custodians, traders and bankers.
The business has been investing heavily in growing offshore by physically growing its sales network across Asia, Europe and North America, while its Australian operations remain the bread and butter of its software services business.
The business is split into two main operating divisions of Wealth Management and Capital Markets, with the Wealth Management division being the growth driver and main revenue and profit generator.
It's the growing international success of this division that makes for a tempting investment proposition. In this division international revenue growth was up 46% to $23.7 million, with the business apparently seeing a lot of success in selling its products to administrators of UK pension funds.
The Wealth Management division is still coming off a small base in huge markets and given the scalability and recurring revenue type nature of its products the future looks bright.
The company's GBST Capital Markets division has not performed as well, with its GBST Syn straight through trade processing back office platform perhaps not gaining the traction the business would like. However, GBST does already have some serious global clients and clearly has an opportunity to develop in markets like the U.S. and Asia.
Outlook
The company now generates more earnings internationally than in Australia, which provides a significant currency tailwind.
It also operates in a complex area which means it isn't always easy to win new business, although once the business is won client retention should be good and business development is showing encouraging signs to be further fired-up by investment in the sales effort.
Debt free and growing strongly, in my opinion this remains one of the best small-cap businesses money can buy on a limited ASX universe.
The stock lifted around 15% to $4.52 in morning trade, but still only trades on around 21x a conservative estimate of full year earnings which seems reasonable given the tantalising potential.
With its rock solid financials, attractive valuation and growing success GBST might be the kind of stock to interest Warren Buffett, but The Motley Fool knows 2 Top ASX Shares Warren Buffett Would Love even more…
