3 reasons this ASX 200 stock is one of WAM's 'strategic holdings'

This fund manager has outlined the positive case.

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The S&P/ASX 200 Index (ASX: XJO) stock Iress Ltd (ASX: IRE) is a leading idea in the WAM Leaders Ltd (ASX: WLE) portfolio.

Iress is an ASX fintech share that provides software and services for trading and market data, financial advice, investment management, mortgages, superannuation, life and pensions, and data intelligence to the global financial services industry.

Let's take a closer look.

What attracted the fund manager to Iress shares?

Iress is currently going through a turnaround through "cost efficiencies and divestment of non-core businesses, which will help reduce its leverage and drive future earnings growth."

The company recently advised its cost base was "more favourable" in the second half, with further efficiencies found.

It conducted a headcount reduction program between May to September. The full effect of the cost reduction program will be felt in FY24.

The company said it continued to evaluate further cost optimisation opportunities at the business unit level. Third-party vendor optimisation will also be a focus for FY24 for the ASX 200 stock.

WAM said Iress was one of its strategic holdings because the catalysts could lead to a "material re-rating of the valuation in the near term".

The fund manager pointed out Iress' trading update during the month, which highlighted the benefits of recent cost reductions and stabilisation in revenue, leading to the company raising its earnings guidance "meaningfully".

The investment team at WAM is still positive about the company as it continues to execute its strategy.

What's the new guidance?

Iress said underlying earnings before interest, tax, depreciation and amortisation (EBITDA) was "trending more favourably" in the second half of FY23.

Its previous guidance for the second half was between $58 million and $62 million, which was upgraded to a range of between $63 million and $68 million.

This meant the guidance range for full-year underlying EBITDA increased from a range of $118 million and $122 million to between $123 million and $128 million.

What about the long-term outlook for the ASX 200 stock?

By the end of FY24, the company is expecting the transformation program to be completed, supported by 'specialist execution consultants'.

There's also going to be a "significant focus on modernising pricing initiatives" and "selective investment into core businesses."

FY24 underlying EBITDA growth of between 5% to 10% is expected, to reach between $135 million to $145 million. By the end of FY24, it's expecting its annualised underlying EBITDA to be between $150 million to $170 million.

By FY25, the business aims to progress to the rule of 40. That's where the revenue growth and profit margin together amount to at least 40. It wants to have a streamlined cost base, as well as significant debt reduction and balance sheet strength.

Iress share price snapshot

Since the start of 2023, the Iress share price is down 16%.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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