The next Aussie IT Stars

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Considerable attention has been shone on the FAANG stocks (Facebook, Amazon, Apple, Netflix, Google (aka Alphabet)) overseas as their strong revenue expansion and burgeoning growth expectations have commanded much of the investment flow in the US. However, as the market begins to experience a mild pullback, these stocks have been subjected to recent selling pressure. All now trading at more than 20% down from recent highs.

We have our own, home-grown version of high-profile IT stocks experiencing impressive rises and sharp declines. The domestic cohort have been identified as the WAAAX stocks (Wisetech, Appen, Afterpay, Altium, Xero).

Many are wondering whether the tech bubble is about to burst. Our view is that today’s IT sector, both globally and overseas, is very different than the one that imploded in the early 2000’s. Today, many of these names are generating strong cash flows from ballooning revenues and, in most cases, generating profits.

Should their strong fundamentals remain intact, then recent volatility provides an opportunity for fast-acting investors to snap up some well-priced, high quality stocks.

But, are the tech opportunities limited only to the WAAAX or FAANG stocks? In Australia the listed IT sector is small. Beyond the well-established (and now global) names such as REA Group, Car Sales, and Seek; there is another forgotten cohort that has not have received the same media coverage. Through the delivery of innovative technologies, these quieter players may become our next IT pinups?

We shine the light on five such Stock Doctor Star Stocks that are worthy of inclusion amongst the ranks of Aussie IT businesses taking on the world.

BVS – Bravura Solutions Limited

BVS is a global provider of software solutions and services to clients in the wealth management and funds administration industries. Their investment thesis is driven by structural growth drivers in each industry, including the changing regulatory environment and demand for increased automation. BVS’s flagship product, Sonata, provides a scalable, customer centric software platform to support a range of financial products across the investment and superannuation spectrum. Growth is driven by the rollout and rising sales of Sonata, with management expecting EPS growth to be in the mid-teens next year. The company was also recently added to the S&P/ASX200 Index.

IFM – Infomedia Limited

IFM provides software support to the after-sales parts and service sector of the automotive industries. IFM products are used by over 147,000 dealership personnel in more than 185 countries with its businesses; Microcat, an electronic parts catalogue, and Superservice, dealer management software. The company recently announced the acquisition of Nidasu, an Australian based automotive data solutions company, to complete the feedback loop of dealer / customer interaction and feedback. Pleasingly, the company has over 95% of recurring revenue with growth driven by 80% of revenue generated overseas.

NAN – Nanosonics Limited

While not an actual software company, NAN develops infection control technology, deriving most of its revenues from its Trophon product. Trophon provides high-level disinfection of sensitive medical instruments in hospitals and clinical practices that are not suitable for high-temperature sterilisation. FY18 was a transitional year for NAN as it ramped up new product development. Growth is expected to resume in FY19 driven by the launch of Trophon2 in the US and EU, further upgrades to its already installed base which is older than five years, a new reseller agreement with global partner General Electric, and entry into new geographies in FY20 including Japan.

PME – Pro Medicus Limited

PME is a medical imaging software provider to hospitals in Australian, Europe and the US  where they now have two of the top four standardising on PME’s platform, Visage. Due to the nature of the business, cash flow is largely sensitive to the variability in contract wins, though it recently announced a seven-year Visage contract worth AUD $27m with US-based Partners Health. This is on the back of the recent Mercy agreement highlighting their ability to win contracts and gain market share in the growing medical imaging industry. Management expect growth in FY19 to reflect recent contract wins and the likelihood of gains from its strong contract pipeline.

PPS – Praemium Limited

PPS is a financial software and services company. The company provides portfolio administration, investment platforms and financial planning tools to the wealth management industry, both here and overseas. We believe that PPS, and similar independent offerings, are well placed to capitalise on the fallout from the Financial Services Royal Commission. Recent domestic contract wins, and its UK expansion add weight to this belief, though the UK is not expected to be profitable until the 19/20 financial year. Despite recent price volatility, funds under administration in the September quarter saw strong inflows, growing 29% over the past 12 months to $8.6 billion, despite volatile global markets.

All figures as at 20 November 2018

Published Tuesday, 27 November 2018 | Financial Review

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