Iress Ltd shares race higher on improved cost management

Iress Ltd (ASX:IRE) shares got a wriggle on today.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares in Australia's most established financial technology businesses Iress Ltd (ASX: IRE) raced 13% higher this morning after it reported a net profit of $32 million on revenue of $229.7 million for the six-months ending June 30, 2018.

Iress reports on a calendar year basis, with profit and revenue both up 8% on the prior corresponding period (pcp). On an adjusted basis profit is up 13% on the pcp, or 11% on a constant currency basis.

The group will pay an interim dividend of 16 cents per share, which is flat on the prior period and places the stock on trailing yield of 3.2% with tax credits franked to 60%.

As at period end net debt stood at $189.7 million, which is reasonable at 1.4x segment profit given this is a business where 90% of the revenue is recurring in nature, which gives it quite a defensive nature.

Buy-side institutional fund managers and other professional investors will likely be familiar with Iress's core financial data platform and software that is market leading in supporting blue-chip clients worldwide. It is also sticky in nature, which means clients are unlikely to switch software provider given how integral Iress's technology is to the daily operations of many financial services oriented clients. This sticky nature is another attractive characteristic of the business given the recurring revenues.

In the recent past Iress's weakness has been cost blowouts despite some steady revenue growth, with the profit growth this half coming largely on the back of what management described as "flat" cost growth.

Overall, management reaffirmed guidance for segment profit to grow 3%-7% over the calendar year as it continues to bed down recent acquisitions and work on managing its costs better.

However, it also flagged that if FX rates remain the same then segment profit could grow 5%-9% on the prior year, although it's notable Iress generates a lot of profit in Brexit-rocked sterling. As such the AUD/GBP spot rate will be volatile over the six months ahead, with a no-Brexit deal likely to send sterling lower and hurt Iress's profit.

Iress is also expanding into the financial advice space with its XPLAN financial advice platform in the UK market, with a small lending (mortgage) platform also posting revenue of £8.4 million in the UK.

Other junior fintech rivals on the ASX making waves recently include Hub24 Ltd (ASX: HUB) and Praemium Limited (ASX: PPS), both of these could be worth a spot on the watch list.

Foolish takeaway

Iress is a business with some attractive economics and a market-leading product, although its cost control problems led me to sell my entire holding over 2018 in favour of better investment opportunities. The stock is also relatively expensive on a conventional valuation basis and I'd rate it no more than a hold for now.

Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. You can find Tom on Twitter @tommyr345 The Motley Fool Australia has recommended IRESS Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Unsure man analysing data on laptop.
Share Gainers

Here are the top 10 ASX 200 shares today

ASX investors endured a rough day of trading this Tuesday.

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
Share Market News

ASX 200 takes the latest RBA interest rate verdict in stride

The ASX 200 looks to have shaken off today’s RBA interest rate call.

Read more »

A mature-aged couple high-five each other as they celebrate a financial win and early retirement
Share Gainers

Why this ASX 300 stock is soaring 12% after a disastrous year

This company has had a dramatic reversal of fortunes this Tuesday...

Read more »

A young woman wearing overalls and a yellow t-shirt kicks one leg in the air showing excitement over the latest ASX 200 shares to hit 52-week highs
Share Gainers

Why Core Lithium, Imugene, Lifestyle Communities, and Mineral Resources shares are charging higher

These shares are having a good session. What's going on?

Read more »

A miner stands in front oh an excavator at a mine site
Broker Notes

Broker says buy the dip on ASX 200 uranium share with 69% upside

Shaw and Partners says this ASX uranium stock is trading at an attractive price point right now.

Read more »

Person with thumbs down and a red sad face poster covering the face.
Share Fallers

Why Domino's, Lynas, Paladin Energy, and St Barbara shares are sinking today

These shares are having a tough session. What's going on?

Read more »

A young woman smiles as she rides a zip line high above the trees.
Share Gainers

4 ASX All Ords shares up 315% to 682% in a year!

Investors have sent these ASX All Ords shares flying higher. But why?

Read more »

Woman on a swing at a beach, symbolising passive income.
Dividend Investing

Overinvested in Fortescue shares? Here are two alternative ASX dividend stocks

Let’s unearth some other passive income opportunities.

Read more »