Emerging Australian fintech company Bravura Solutions Ltd's (ASX: BVS) share price has started 2019 with a bang.
In a little over two months, Bravura shares have soared almost 50% higher from their December 31 price of $3.70 to be now pushing $5.50 as at the time of writing. And going back further tells an even better story: investors who snapped up shares at the beginning of 2018 would now be sitting on a gain of well over 200%!
What is driving the Bravura share price higher?
The big driver for the most recent surge in Bravura share price was the company's strong half-year results. It was really a shareholder's dream: the company posted strong growth across all of its key metrics, with barely a weak number in sight. Revenue for the six months ended 31 December 2018 was up 24% on first half FY18, which drove bottom line NPAT growth of 15%. But what was even more significant, in my opinion, was the fact that Bravura grew its recurring revenues by 31%. Recurring revenues made up 72% of total revenue for the half.
Combined with a strong net cash position of $14 million, margin expansion of 300bps in its wealth management business, and growth in both return on assets and return on equity, the strength of its recurring revenues provides Bravura with an incredible foundation from which to continue to pursue growth opportunities.
Why look at recurring revenues?
I've been banging on about recurring revenues for a while now because I think it is really one of the most important metrics for investors to look out for – particularly in a young company. Being able to lock in recurring revenues is so crucial to a growing business because it improves management's ability to budget. If the company can say with a great degree of certainty how much revenue it will generate in future periods, management can set aside cash to cover expenses and be able to estimate accurately the amounts it can then use to invest in new growth projects.
Management still has to be skillful enough to invest free cash flow in the right projects, but in my mind, it's no coincidence that market darlings and growth companies like Altium Limited (ASX: ALU) and WiseTech Global Limited (ASX: WTC) also have incredibly high rates of recurring revenues.
Should you invest in Bravura shares?
So the big question, as always, is: should you invest? When a company's shares have surged 50% higher in a matter of months it's pretty natural to think you might have already missed the boat. But Bravura is really going from strength to strength, and that big jump in its recurring revenues gives me faith that it is still very much in its growth phase.
The company's outlook for the remainder of FY19 is – as you'd expect – incredibly optimistic. Growth in scale and efficiencies across the business are helping to boost those ROE and ROA figures, and Bravura has a strong pipeline of sales opportunities across multiple geographies.
It's entirely possible that the Bravura share price might suffer some sort of correction in the shorter-term: a bit of herding mentality in the market may have pushed Bravura's share price into overbought territory, as can often happen when strong results put more focus on a small- to mid-sized company. But I believe that, over the longer-term, Bravura can continue to deliver solid growth to investors.
