Goldman Sachs 12 month target price $4.80

Buy

Bravura Solutions Ltd.

(BVS.AX)

Acquisition could be 6.1-6.7% EPS accretive; Buy

12 October 2020 | 12:32PM AEDT

BVS has today announced the acquisition of Delta Financial Systems (Delta), a UK software company. Delta's technology powers complex pensions administration in the UK; its products support the administration of small self-administered schemes (SSASs) and self-invested personal pensions (SIPPs). This includes the complete range of complex client drawdown options available under the pension freedoms legislation. Delta currently has more than 30 clients in the UK. BVS commented that the acquisition is complementary to its core Sonata offering, and broadens BVS's products and services ecosystem. The company also indicated that it will have an opportunity to offer its product suite to the clients of Delta.

We remain Buy rated and believe BVS is well positioned due to: 1) its strong market position in existing product offerings, with a high degree of recurring revenues (FY20 77%), 2) the emerging microservices ecosystem strategy, which could increase BVS's scope and velocity of sales, 3) a net cash position that provides BVS with a buffer in uncertain times, but also gives the company flexibility to invest in the new microservices ecosystem and pursue further acquisitions, and 4) undemanding valuation.

Transaction details

The total consideration is up to GBP23.0mn (A$41.5mn) funded from existing cash reserves, and subject to regulatory approvals BVS expect the acquisition to complete by the end of October 2020.

FY20 pro-forma revenue for Delta was GBP6.0mn, and BVS forecast this to grow 20-30% and have similar margins to BVS's wealth management segment (FY20 wealth management EBITDA margin 29.3%). BVS expect the acquisition to be EPS accretive in FY21.

Potential accretion

In our view this potential acquisition builds on BVS's existing strong global product offering, and provides potential cross-sell opportunities. For illustrative purposes, we show below in Exhibit 1 potential accretion based on the revenue growth range of 20-30% provided by BVS and margins similar to BVS's wealth management segment, as per the BVS release. Based on a pro-forma full year contribution, our analysis indicates the acquisition could be 6.1-6.7% accretive in FY21E. Adjusting for potential completion at the end of October implies 4.1-4.5% accretion in FY21E (Nov 2020 - Jun 2021).

Exhibit 1 : Illustrative analysis of potential accretion from Delta Financial Services acquisition

Source: Company data, Goldman Sachs Global Investment Research

We are Buy rated on BVS. Our 12m TP of A$4.80 is based on equal weighted blend of our DCF (WACC of 8.8%/ terminal growth 2.5%) and EV/EBITDA (20.5x FY22E EV/EBITDA based on peer group median applied to FY22E EBITDA) methodologies.

Key risks

Rapidly changing technology requires ongoing investment; Fewer contract wins (since forecasts are contingent on the ability to win new clients); Contract losses.