Why the Praemium share price is down 21% this week

The Praemium share price has fallen sharply following the loss of a significant contract.

| More on:

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

a woman

The share price of investment platform provider Praemium Ltd (ASX: PPS) has fallen 21% to 44 cents this week following Monday's announcement that the private wealth arm of Australia and New Zealand Banking Group (ASX: ANZ) has chosen a new platform provider.

ANZ Private generated $4 million in revenue for calendar year 2018 which represents 8% of Praemium's overall revenue. The business transition is expected to commence from the new financial year with Praemium's rival, Netwealth Group Ltd (ASX: NWL), winning the contract as competition in the investment platform space intensifies.

Whilst the loss of a major client is disappointing for Praemium the loss has been softened by the amount of new business it has won, which in aggregate will have a positive material impact in the new financial year by exceeding the amount of revenue lost from the ANZ Private contract.

The major new agreements signed by Praemium include the renewal of its contract with Asgard Capital Management from November 2019 for up to 6 years with a minimum contract value of $3 million per year.

Smaller agreements from Morgan Stanley Wealth Management Australia and Shaw and Partners worth approximately $1 million per annum have also been agreed to.

Foolish takeaway 

Praemium's share price is down 31% in 2019 despite the rise in global equity markets. The share price fell to a low of 41 cents on Wednesday, a level not seen since 2017 before recovering slightly. This week's announcement has added to the negativity surrounding Praemium after it reported a softer than expected result at its half-yearly in February.

For the first-half of FY19, Praemium reported revenue growth of 7% to $22.9 million boosted by a 30% increase in global clients in calendar year 2018. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rose 21% to $5.1 million. The Australian part of the business is highly profitable with 42% EBITDA margins that managed to offset the $1 million operating loss from the international arm of Praemium.

Praemium is currently trading for less than 4 times estimated FY19 revenue which is a significant discount to some of its peers and historical levels. Whilst the company is growing at a slower rate than its rivals a lot of bearishness is already priced into the stock and this sell-off may turn out to be an overreaction.

Motley Fool contributor Tim Katavic has no financial interest in any company mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Praemium Limited. The Motley Fool Australia owns shares of Netwealth. The Motley Fool Australia has recommended Praemium 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 Fallers

A worried woman sits at her computer with her hands clutched at the bottom of her face.
Share Fallers

These 3 ASX 200 shares have hit fresh multi-year lows: Buy, sell or hold?

One of these stocks has crashed over 50% over the past year alone.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why Brazilian Rare Earths, L1 Group, Silver Mines, and Xero shares are dropping today

These shares are having a poor session on Thursday. But why?

Read more »

A woman looks nervous and uncertain holding a hand to her chin while looking at a paper cut out of a plane that she's holding in her other hand.
Travel Shares

Qantas stock is down 17.7% in a month. Time to buy?

Qantas is back to April prices.

Read more »

A young man clasps his hand to his head with a pained expression on his face and a laptop in front of him.
Share Fallers

Why Amplitude Energy, Atlas Arteria, Computershare, and Woodside shares are falling today

These shares are falling on hump day. But why?

Read more »

A rueful woman tucks into a sweet pie as she contemplates a decision with regret.
Energy Shares

Why is this ASX 300 energy share crashing 42% on Wednesday?

Investors are pummelling the ASX energy share on Wednesday. But why?

Read more »

Three sky divers 'falling with style'.
Share Fallers

4 ASX All Ords shares at 52-week lows: Buy, hold, or sell?

Three of these stocks have more than halved in value over the past 12 months.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why DroneShield, Guzman Y Gomez, IAG, and Myer shares are falling today

These shares are out of form on Tuesday. But why?

Read more »

A man sees some good news on his phone and gives a little cheer.
Share Fallers

Why Beach Energy, Block, Life360, and Medibank shares are rising today

These shares are starting the positively and are avoiding the market weakness. But why?

Read more »