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Is Bravura’s Latest Acquisition Well-Timed?

Australia | Oct 14 2020


Bravura Solutions continues to broaden its services, having acquired the UK's Delta Financial Systems. However, given the pandemic is far from over it is unclear how smooth the going will be.

-Revenue growth may prove less resilient
-Platform caters to remote work, early release of super
-Yet uncertainties prevail in the UK


Eva Brocklehurst

Is Bravura Solutions ((BVS)) tackling another acquisition at an opportune time? The company has acquired Delta Financial Systems, a UK software business, for GBP23m funded from existing cash reserves.

The technology provided by Delta Financial supports pensions administration in the UK, with more than 30 clients involved in self-administered schemes and self-invested personal pensions.

Bravura believes this latest acquisition compliments its Sonata product while broadening the services ecosystem. FY22 pro forma revenue for Delta Financial was GBP6m and Bravura expects this will grow 20-30%. Goldman Sachs calculates the acquisition could be 6.1-6.7% accretive in FY21.

Wilsons estimates overall revenue growth of 8% in FY21 for the company, given Midwinter and FinoComp will no longer be separately disclosed, includes these prior acquisitions in its organic calculation of 4% growth.

Delta Financial has similar margins to Bravura's wealth management, which Wilsons expects should provide some minor improvement to overall margins. Demand for digital solutions and automation has strengthened as a result of the pandemic, and the broker noted at the time of the FY20 results that the sales pipeline was strong.

While Macquarie considers there are strong structural drivers, further catalysts are required to improve clarity for investors. The broker has highlighted the complementary nature of the products in terms of those working remotely. Bravura also caters to the need to manage early superannuation release volumes.

Macquarie has an Outperform rating and $5.50 target and calculates the company needs 6% operating earnings (EBITDA) growth to obtain a flat outcome for FY21 net profit.

Goldman Sachs has a Buy rating and $4.80 target and notes the high degree of recurring revenue in the business. Furthermore, the business is net cash, providing a buffer in current times but also the flexibility to pursue further acquisitions.

The emerging strategy in microservices ecosystems and the cross-selling opportunities with the latest acquisition provide make for accretive potential, the broker asserts. Furthermore, the business is net cash, providing a buffer in current times but also the flexibility to pursue further acquisitions.


However, Wilsons is concerned about whether long-term sticky clients can be convinced to migrate in challenging times, notwithstanding the value on offer, and suspects revenue growth may prove less resilient than originally thought.

Wilsons retains an Underweight rating, having downgraded in August, and notes organic growth in FY20 was hard to find.

The broker is supportive of the business and acknowledges the market leadership and value proposition, but is aware of the long-term nature of contracts and complexity for customers changing their wealth management platform, which raises the question of whether Bravura is a "need to have" proposition in the current climate.

Wilsons does indicate that this is not a long-term view but rather stems from observing that customers need to remain conservative and may delay decision-making, which could, in turn, impact Bravura's growth and profitability.

The broker, assessing revenue visibility is unclear, and despite the focus on micro services and the expansion of the addressable market, envisages several headwinds for the core Enterprise customer offering.

Of these, the increase in coronavirus cases in the UK stands out, with the potential for new measures that include a three-tiered local lockdown. There is also ongoing ambiguity regarding the Brexit transition, as the current trading relationship with the EU is due to end in December.

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