Praemium - PPS

[Lizard]

Too early for this one, but think it is worth keeping an eye on - maybe one to look at in a years time, as they are still forecasting a loss in 2013:

Praemium is a supplier of portfolio administration services and platforms to the funds management industry in Australia and the UK. Current market cap is around $20m (last sale 6.7cps) and revenue of $13m in FY2011.

Founded in 2001 by Arthur Naoumidis, Praemium listed on the ASX in May 2006, issuing 45m shares at 40cps to raise $18m for expansion into the UK and improvements within existing Australian products. At time of listing, the company had revenues of $1.3m but was undergoing rapid growth. The market cap on listing was $51.8m, with equity of $17.3m (mostly cash from the raising).

Over the next two years, revenue grew rapidly, reaching nearly $5m in 2007. However, no expense was spared in the process, with a loss recorded of $10m - largely resulting from employee expenses. This pattern of growing revenue and $10m losses repeated itself in 2008 and 2009, as revenue reached $8.8m. Growing revenues began to offset the losses in 2010 and 2011, but they were still an unsustainable $5.5m. With the market growing leery of more capital raisings (at least a further $24m seemed to have been required by this point), the founder took a back seat and handed the reins to Michael Ohanessian, who appears may have been picked by the Chairman from his team at Lion Capital and who was previously involved with Genetic Technologies (GTG) and Vision Biosystems.

A look at the segmental information shows that the losses of the past two years have come largely out of the UK operation, with Australia operating profitably (although some of this could be inter-company cost allocation). However, the UK operation has been growing rapidly, increasing in funds on platform by 58% in 2011 and by 15% in the first half of the 2012 year.

Meanwhile, the company re-structured in the first half of the 2012 financial year, spending $1.5m on restructuring. There has been an improving trend in operating costs in the quarterly reports, with around a $700k per quarter decrease in staff costs. Revenues overall were down on pcp in the first half of 2012, but appear from cash receipts that they may have picked up again in second half to recover lost ground (also about $1m in HY11 revenue looks to have been a one-off contract payment). Combined with reduced costs, this has seen a small positive operating cashflow in the final quarter and a forecast of positive EBITDA for the half.

With costs successfully contained and cash flows now sustainable, it could have been close to time to buy in...in theory, they should have been able to push over the line into profit next year. However, the CEO has already warned that a loss is still budgeted for in 2013 in order to pursue growth opportunities, so I'm picking there is no hurry - just maybe one to have on the watchlist for the next 12 months. The model should be quite scalable and revenues generally recurring, so the potential is quite good as they begin to achieve critical mass.

[Lizard]

Investor Daily - Praemium Reports Positive Earnings (http://www.investordaily.com.au/cps/rde/xchg/id/style/14975.htm?rdeCOQ=SID-0A3D9632-4C01B4DB)



Improvement follows restructure

By Samantha Hodge
Wed 22 Aug 2012
Praemium sees its restructure pay off with a 68 per cent improvement in earnings in 2012 compared to the previous year.


Praemium has reported a significant improvement for the 2012 financial year following its organisational restructure and cost-cutting program.

Despite earnings before interest, tax, depreciation and amortisation (EBITDA), excluding one-off restructuring costs, coming in at a loss of $1.6 million, the figure was a 68 per cent improvement on the $5.06 million loss in the 2011 financial year.

The company reported a net loss, including restructure costs, of $3.9 million, a 28 per cent improvement year-on-year.

Revenue and other income remained steady at $13.1 million, the company said in a statement to the Australian Securities Exchange.

"This past financial year we have seen a major step forward in the evolution of our company. We set ourselves the initial target of moving towards profitability by a combination of cost reduction and revenue enhancement," Praemium chief executive Michael Ohanessian said in the statement.

"This progress was clearly evident by the second half of the financial year, with our financial results at breakeven EBITDA and a small EBIT loss."

The company said that with the introduction of the Future of Financial Advice regulatory changes, separately managed accounts (SMA) would become increasingly important in the market.

"Our SMA technology, which is operated by BlackRock, will therefore become an important part of our growth strategy," Ohanessian said.

In May, Ohanessian told InvestorDaily the company was focused on taking its SMA technology, in partnership with BlackRock in Australia, into the United Kingdom market.

But he would not be drawn on speculation Praemium was the frontrunner to purchase BlackRock Australia's SMA business.

"We see a lot of synergies between what we do in Australia and what we do in the UK," he said at the time.

"BlackRock is a partner of ours; we have been in partnership with them for seven years. We're very comfortable with the growth of that SMA and our relationship with BlackRock is very good."

In Australia, Praemium's SMA technology is used by BlackRock Australia for CPS, which was launched in August 2005.

[Lizard]

Acquisitions and capital raising, as they take the Blackrock CPS business in house and acquire Hong Kong based "Wealthcraft" which also brings them a cloud-based system.

Placement and rights issue (1:8) at 6cps. Market seems interested at 7cps. It is possible the speculation re Blackrock and capital requirements has been holding it back, so may get some interest - particularly if results come through in cashflow in EBIT in 6 months time.

[Jaa]

Hi Lizard, I have had a small holding in Praemium since their last rights/SPP issue a couple of years ago.

Looks a bit like they didn't have much choice but to take on the Blackrock CPS responsible entity business. Hopefully now more margin for them but with the risk Blackrock's support fades with time and/or they go off and do something different. Still they have got it for free basically.

Wealthcraft looks like a fairly lightweight wrapper around what is essentially Microsoft CRM. But then they are only paying 600k for it which is nothing in software terms.

[Lizard]

Maybe the rising tide effect, but PPS has been moving up of late and currently 9.1cps. Not quite small enough for the micro-caps thread, but at $33m market cap, it's not too far off and on the illiquid side.

[Lizard]

Back at 6cps.

I thought the announcement re Wealthcraft launch today might have interested the market, but seems my other holding in the Financial Advisor software sphere, RFL, got the vote with their acquisition of Provisio completed.

[blackcap]

Back at 6cps.

I thought the announcement re Wealthcraft launch today might have interested the market, but seems my other holding in the Financial Advisor software sphere, RFL, got the vote with their acquisition of Provisio completed.

Hi Lizard, for what its worth, I believe this company may be a "safer" prospect than RFL or offer less volatility. Though with RFL you might have more of a ride. Still think 6 cents is about fair value and not tempted yet. Like you said, it may be worth waiting a while and seeing where it is headed.

[Lizard]

I added some more of these at 7.8cps today on the back of a good quarterly result. Not especially cheap at market cap of $29m, but I like what they are doing and appear to be heading in the right direction. Good growth in Funds on Platform in Australian SMA funds and should be a very scalable business.

[Lizard]

News article (http://www.financialobserver.com.au/articles/praemium-set-for-local-global-growth) following quarterly:

Praemium set for local, global growth



25-Jul-2013

By Krystine Lumanta





Listed online portfolio administrator Praemium was expecting strong growth in Australian and international markets after the success of its new strategies, its chief executive said yesterday.

Praemium chief executive Michael Ohanessian said the Australian business had “changed a lot” after it acquired the BlackRock customised portfolio service (CPS) scheme in December 2012, as well as its purchase of the Hong Kong-based WealthCraft customer relationship management (CRM) offering in September last year.

“The Australian business has really had some exciting new strategies over the last 12 months, which we think will drive growth,” Ohanessian told financialobserver.

“We acquired the BlackRock scheme last year, so we became the responsible entity, which was a huge change because until then we were not acting as a fiduciary, we were just a software provider.

“So that has made the business an entirely different business today and we also launched our new WealthCraft CRM here in the Australian market where some of our existing clients are now clients of the CRM.

“It’s a good profitable business now and we think it will grow.”

In its cash report released earlier this week, Praemium said its operating cash inflow was $140,000 for the June quarter, with an annual operating cash outflow of $247,000 following the completion of the WealthCraft and CPS acquisitions during the year.

The group’s cash balance as at 30 June 2013 was $8.1 million.

After 12 months of operation, Ohanessian said the Praemium International division had a healthy pipeline of prospective clients in place.

The international business is serviced by the company’s London and Jersey teams, leveraging off the London version of the software.

Ohanessian said the strong demand for the technology would be a driver for growth and expected the business to continue its success.

“We’re very excited by the opportunity,” he said, adding the international offering’s funds under advice were still at an early stage.

“It’s fair to say the way investment and advice is managed around the world lacks transparency in some cases, it’s not particularly scalable to the people who are providing that service to end investors and the prospect of increased regulatory requirements is a real concern to many international advisers.

“I think a lot of the firms operating outside of the newly regulated markets, like Australia and the United Kingdom, can see the writing on the wall and so they’re getting ready and future-proofing their businesses.”

The Foreign Account Tax Compliance Act was due to go live in the United States in 2014, requiring institutions with US clients to abide by enhanced reporting obligations to the Inland Revenue Service.

Praemium was able to partner with specialist investment managers to provide a tax-compliant solution.

“Meeting the needs of the expat United States community in this complex regulatory regime is a significant opportunity,” Ohanessian said.

“We have fantastic model portfolio technology with a very good portfolio administration underneath it and we’re relatively rare as a separately managed account provider to have a cloud-based solution, so all those things put together make us a pretty attractive proposition to a lot of firms around the world.”

[Lizard]

Unusual volume through on Thursday/Friday, so perhaps underwriters from last years cap raising took advantage of some interest after the quarterly to unload? Closed up at 9cps.

[Lizard]

Good result - getting close to break-even underlying now, so I hope that means profitable in the coming year, although no clear guidance given beyond "growth". No obvious market reaction - will likely be more responsive to the quarterlies until profitable. Last trade 8.2cps, buyers currently at 8.5cps.

[Lizard]

Ended the day at 9.2cps.

An interesting perspective on SMA platforms here: http://www.investordaily.com.au/33983-small-platform-technology-wins-over-perpetual-sma

[Lizard]

Has been getting a boost last few trading sessions and crept up to 11cps on improving volume.

[Lizard]

Quarterly out - good growth in funds on platform, but not yet translating into the kind of sales receipts it will need to justify the current 16cps share price. Will be interesting to see how the market reacts.

[Lizard]

Break out from recent consolidation following on from positive AGM commentary (now 18cps):

5096

[Lizard]

Good announcement on contract to RBS International to provide a platform for their clients.

This comes under their Jersey-based "Praemium International", launched in July 2012. Although they reported having "over a dozen firms on the platform" in their annual report, they seemed to only just be beginning to see Funds On Platform for this subsidiary, so RBSI should add a bit of a kick along for them.

Very happy with this investment. :)

[stoploss]

Good announcement on contract to RBS International to provide a platform for their clients.

This comes under their Jersey-based "Praemium International", launched in July 2012. Although they reported having "over a dozen firms on the platform" in their annual report, they seemed to only just be beginning to see Funds On Platform for this subsidiary, so RBSI should add a bit of a kick along for them.

Very happy with this investment. :)

Liz, thanks for the updates like the story and momentum , have recently joined you on the register in this one .

[stoploss]

Update out

http://www.asx.com.au/asxpdf/20140120/pdf/42m644c3362mr6.pdf

[Lizard]

Nice report on the Funds On Platform progress and big jump in Aussie SMA figures...

I'd like to have a better feel for how their receipts relate to funds though, as it is hard to understand how they can be getting good growth in funds, yet see a reduction in receipts year on year... hopefully just a timing issue.

[Lizard]

Half year result out - the growth and potential are there, but seems that market feels it is fairly valued at 15-16cps and will probably need growth in revenue to catch up.

For now, investment in growth is preventing profitability, as it is a case of grabbing market share off a low base. Plenty of market out there to grab, but may take a year or two to flow through to profits and market cap.

[Lizard]

Has been stuck in the 15-16cps range for a while, so perhaps the move to 16.5cps today is the sign of new strength - which should be supported by a good quarterly result this month.

[stoploss]

Has been stuck in the 15-16cps range for a while, so perhaps the move to 16.5cps today is the sign of new strength - which should be supported by a good quarterly result this month.

http://www.asx.com.au/asxpdf/20140721/pdf/42qxkqyygrpzt8.pdf

[Lizard]

Pretty happy with that quarterly! Looking good and seems like they are now in positive cashflow territory, so potential for "strength-to-strength" from here. :)

[stoploss]

Pretty happy with that quarterly! Looking good and seems like they are now in positive cashflow territory, so potential for "strength-to-strength" from here. :)

finally ....:)

[Lizard]

Still holding here - has been steady at around 22cps for a while now. Bit of a slow quarter in September, but December quarterly report out today looks good and still on track for maiden profit.

Not cheap, but the underlying business growth should keep it kicking along. However, given valuation and the possible effects of market volatility, I won't be averse to taking profits if things get edgy.

[Lizard]

Has been feeling the good times since half year... finished at 39.5cps. Good leverage in this model, although hard to determine where fair value is, so I've sold about 30% to lock in some gains for now and will be happier to let the rest run.

[babymonster]

I made good profit from it but now I regret I sold too early. Lol