Weak and weaker
RESULT ANALYSIS
Need To Know
- Weak result. Guidance miss on FY23 and FY24 consensus estimates.
- Balance sheet looks stretched due to a poor earnings outcome. Leverage ratio at 2.8x
- Result gives the market little to be positive about. Expect that the share price will struggle given the elevated multiple and weak outlook
Result overview:
Segment profit A$69.7m vs A$78.9m consensus (~11.6% miss)
EBITDA A$59.5m vs A$59.4m consensus (in-line)
Net debt A$376m, with leverage at 2.8x
No DPS declared vs 16cps consensus.
Investment Implications
Weak result with an even weaker outlook. Revenue in-line albeit with significantly weaker margins.
Iress has announced the sale of its managed fund admin (MFA) business to SS&C for A$52m. The sale comes as a positive and should contribute to paying down some of the groups debt. We note that the sale does not include the platforms business.
The balance sheet continues to be in a challenging position due to a weaker earnings outcome. Group leverage increased to ~2.8x (from 2.2x), pro-forma we estimate that this falls to ~2.4x. The issue remains that earnings and cash generation is lower than what previously was the case. We don't believe that IRE will be forced to raise equity off the back of this result but we expect the balance sheet will remain a key focus for the market.
IRE declared no interim dividend for 1H23 due to leverage concerns. The market is likely to view this poorly given IRE only recently completed its ~A100m buy-back over the course of FY22.
FY23/24 Outlook: FY23 EBITDA guidance of A$120m implies a ~10% miss to consensus. FY24 outlook is ~5-10% EBITDA growth, at the midpoint this implies a ~20% miss to consensus expectations.
Investment Thesis
Its clear that the cost out program, which excited the market earlier in the year, is not playing out the way the market was hoping. Cash generation and margins appear to be getting weaker and the outlook for the company looks significantly more challenging.
We expect the stock will remain in a challenging position until there is further clarity on improving conditions. The stock trades at a ~1SD premium to its long term average PER and given the weakening outlook its hard to say that we see value here.
Stock Overview
Share Price
Company Overview
IRE is a global software company that offers financial services solutions, market data, trading, and portfolio management. They operate across multiple countries, including Australia.
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