Expansion supports growth
Profile Software is a financial software provider that is addressed to the Banking, FinTech and Investment Management industries. Although the company is based in Greece, it has a significant international footprint (64% of 2018 revenues), with 250 clients in 38 countries and 7 international offices. Profile’s main product portfolio refers to core banking services (FMS.next), banks’ treasury front-to-back office (Acumennet), investment management services (Axia) and financial institutions’ risk management (RiskAvert), while 80% of its financial software is made in-house (R&D investments stand at c15-20% of sales). The company targets to grow both organically and through acquisitions, with this strategy leading to sales and EBITDA CAGRs of 22% and 20% respectively in 2016-18. Note that the acquisition of the French Login in 2017 (developer of the Acumennet platform) contributed significantly in the past two years’ growth.
Profile’s business model relies on recurring revenues that stem from existing contracts. In specific, c70% of top-line is generated by maintenance on existing licenses, additional licenses to existing clients or additional modules/functionalities. Note that the company provides all its platforms either by receiving initial front-load license payments, followed by maintenance, or through SaaS (software as a service) contracts that entail annual payments. The rest of the group revenues are generated through new licenses to new clients, as well as via new services sold. New contracts exhibited considerable growth last year, rising by 30% y-o-y to €8.9m, while €7.8m have been secured in H1’19 already. Note that the company added recently to its clientele a Tier I financial institution, Sumitomo, as well as the insurance firm, MADA. Profile managed to exhibit sales’ organic growth (excluding Login) of 5% and 13% y-o-y in 2017 and 2018 respectively, mainly driven by the strong customers relationships that the company has managed to build, in our view.
One of Profile’s strategic goals is the expansion through targeted acquisitions. Login that was acquired in 2017 contributed 13% of that year’s revenues and 20% of 2018 sales. Given its underleveraged balance sheet (2018 net cash of €9m) Profile should exploit similar opportunities that bode well with the company’s product mix/ distribution channels platform. According to the management, Profile could make more moves by 2021e, enhancing further its top-line.
Profile operates in a growing market, since global IT spending by financial services firms is expected to grow to $500bn by 2021e from $440bn in 2018 (IDC data). In this operating environment and with the advantage of know-how, the company can significantly benefit from its expansion in the coming years. We expect Profile to invest in acquisitions in the near future enhancing top-line considerably. Based on our estimates and assuming steady organic growth, revenues could post 2018-21e CAGR of 26%. In addition, we project EBITDA and net profit 2018-21e CAGR of 27% and 46% respectively, reflecting sales growth, as well as solid margins due to favorable product mix. Profile trades at 11.8x P/E 2021 and 4.9x EV/EBITDA 2021 on our estimates, which is undemanding in our view given the company’s organic growth outlook and planned acquisitions.
Vangelis S. Pilios, CFA
ALPHA FINANCE INVESTMENT SERVICES S.A.
5, Merlin Street, GR-10671 ATHENS