An Aussie small cap providing mission critical software

Joe Magyer

Lakehouse Capital

One of our largest positions is Bravura, which is also a newly disclosed holding. This is a company that we have followed for a long time, in fact we met with the management team five times over two and a half years before investing. The company was listed by private equity in November 2016 -- ironically the same week the Fund launched -- and while we are attracted to this type of enterprise software business, we watched patiently, and cautiously, from the sidelines to see how the 47% stake held by private equity played out.

Bravura is a leading provider of software to the wealth management and fund administration industries primarily in Australia, New Zealand, South Africa and the United Kingdom serving a suite of top-tier clients, including: Fidelity International, Bank of New York Mellon, JPMorgan, Prudential, Mercer, Westpac NZ, and Citi, among many other notables.

The company’s new generation Sonata product is pivotal to the company’s long-term growth. Sonata has an open-architecture structure which allows all customer-requested enhancements to be written into the primary code base, and then made available to all customers on a regular -- usually monthly -- basis. This means the Sonata code base is constantly enriched and remains relevant to their customer’s needs.

Bravura’s software is mission critical and customers usually sign up for 10 to 15-year contracts with CPI escalation. In addition to this, roughly half of Sonata contracts also include a volume- related element. The mission critical nature of the products also means customers are slow to change, the sales cycles and implementations are long, and as a result revenue can be lumpy from year to year. The business is delivering mid-teens revenue growth and, thanks to strong operating leverage, we expect the business to generate very healthy earnings growth over the medium- to long-term.

The company was in the headlines over the past 12 months as a potential buyer of ASX-listed, and previous Fund holding, GBST. Bravura raised $165 million in anticipation of a transaction, which in our view fortunately did not proceed. Bravura remains very well capitalised as a result with around $120 million in net cash even after two smaller, recent, and -- we think -- more sensible acquisitions. These purchases add further growth atop an already growing core business with high levels of recurring revenue, and a strong balance to continue investing and growing in the years ahead. 

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Former Co-Founder
Lakehouse Capital

Joe is the former co-founder. Please visit and follow Donny Buchanan and Nick Thomson for the latest insights around Lakehouses’s unique concentrated investment approach that focuses on the key themes of Intellectual Property, Network and Loyalty...

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