Wilsons: New initiation: Bravura should have 30% upside

Wilsons recently initiated research coverage on Bravura (BVS) where we see material upside for investors. When searching for strong technology companies we are typically looking for some key characteristics including: a scalable platform, strong IP, operational leverage and recurring revenue. We believe BVS exhibits all these attributes.

Bravura provides software to the wealth management and funds administration industries primarily across APAC and Europe. The market opportunity is large and we see solid potential in the flagship wealth management product Sonata. Our forecasts are assuming double digit earnings growth in 2018. We are also attracted to the c70% recurring revenue within the mix. Bravura is trading at an undemanding valuation of 15x FY18E price-to-earnings ratio.

Large and growing market opportunity: Bravura provides wealth management and funds administration software. These underlying markets are experiencing strong structural drivers including wealth accumulation, regulatory changes and increased automation to drive improved customer interaction.

Barriers to entry are significant: Systems investment requirements within these end-markets are significant and the products are mission critical. Years of R&D investment have been assimilated into building out the product suite.

Recurring revenue provides underpinning: Bravura commands around 70% recurring revenue providing visibility to forecasts.

Forecast growth is very respectable: Our forecasts assume 10% EPS CAGR FY17A-20E. Equally, with limited capex and working capital requirements FCF generation should also be strong.

Valuation appears to have upside potential: The growing recurring revenue component warrants a higher valuation. Bravura sits on a relatively undemanding valuation in relation to our broader software coverage universe. FY18E PER at 15x is relatively low given the growth outlook. Noteworthy is the EV/recurring revenue ratio at just 2.5x which is materially below the industry average. We see the stock trending to over $2 in forthcoming months.