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Results: Takeover target GBST Holdings just doubled its full year profits

James Mickleboro
Financial Technology

Takeover target GBST Holdings Limited (ASX: GBT) will be on watch today after it released its full year results this morning.

For the 12 months ended June 30, the fintech company posted a 7% increase in total revenue and other income to $94.3 million, a 1% lift in Operating EBITDA before Strategic R&D, and a 103% jump in net profit after tax to $12.7 million.

What were the drivers on the result?

The company’s managing director and chief executive officer, Robert DeDominicis, explained that the positive top line result was driven by both Licence revenue and Service revenue growth over the 12 months.

He said: “Revenue growth of 7% for the year was very pleasing. Licence Revenue growth was positive, growing 3% for the year (and 8% after adjusting for one-off licence fees). Service revenue was 11% higher than the corresponding period, reflecting the strong pipeline of major projects with clients.”

The company’s Operating EBITDA before Strategic R&D was up 1% on the prior corresponding period.

Mr DeDominicis advised: “The cost increase reflects that the transformation of our software incurs a duplication of infrastructure costs during the development phase; one-off costs to expedite and reduce risks of execution in our software transformation; an increase in short term incentives for staff; and the increased use of cloud hosting, replacing capital expenditure. The 2HFY19 experienced lower costs through a reduction in the labour force, a focus on utilisation and other measures to reduce our operating cost base.”

However, he believes this has been worth it and notes that its Strategic R&D program has made significant progress this financial year.

How did its different segments perform?

The UK Wealth Management segment delivered revenue of $42.3 million and EBITDA of $18.4 million, up 6% and 11%, respectively. A key driver of this was increased product development work with Canada Life.

The Australia Wealth Management segment acted as a drag on its results. Although it posted a 13% lift in revenue to $17.4 million, it reported a 12% decline in EBITDA to $6.6 million. This reflected increased hosting expenditure and support costs for legislation updates such as the ATO Member Account Transaction Services changes.

The Australia Capital Markets segment saw its revenue rise 5% to $22.4 million and its EBITDA increased an impressive 24% to $11.8 million. This was largely due to cost reductions.

Finally, the Rest of the World Capital Markets segment grew revenue by 5% to $12 million but posted an 18% decline in operating EBITDA to $3.2 million. This was caused by higher client support costs.

Overall I thought this was a very positive 12 months for the company and I'm not surprised Bravura Solutions Ltd (ASX: BVS) and co. have taken a shine to the company recently.

However, with the takeover looking like a formality now, I think it may be too late to get on board this one.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bravura Solutions Ltd. The Motley Fool Australia has recommended GBST Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019