In this section we place one stock and give it the unconventional assessment.
Class (CL1) – Is the company behind a cloud-based administration software program used to administer SMSF in Australia. It’s dubbed as the most advanced SMSF / Portfolio admin system available. It also provides software to streamline the administration of investment portfolios held by non-SMSF entities such as companies, trusts and individuals. Users have the ability to manage all their SMSF administration and reporting needs from a single system. That’s everything from set up to lodgment. Using Class Portfolio, accountants, administrators and financial advisers can manage the administration, accounting and reporting needs for clients’ investment portfolios. Class has three products: Class Super, Class Portfolio and SuperStream Solution.
On fundamentals, the company rates very high. The StockOmeter ranking comes in at 79 which means the stock is a clear Buy. Whilst trading on a high PE of 40x, its ROE is very high and stable at 37%. Meaning, Class is highly profitable and more than justifies its high PE. EPS Growth is 17.56% and the company has no debt. Its yield is low, but that’s ok because Class is a growth stock not an income stock. Technicals are also looking good.
- Ord Minnett has a Buy recommendation with a target price of $3.60. The broker has a bullish view on the stock following its investor day. Ords says the investor day was better than expects. The Dec Q to date numbers, while still reflecting a disrupted industry selling environment, were broadly in-line with expectations. The value proposition remains strong and CL1 have not yet reached a limit in terms of their addressable SMSF opportunity at their current price point. It’s an attractive entry point here, with CL1 now offering value on the SMSF business alone.
- UBS has downgraded to Neutral from Buy recommendation with a target price of $2.85. Momentum has improved with 3,300 accounts added in the December Q so far. That’s a 50% increase in the pcp. Fees will begin on July 1 next year. That has caused the broker to believe the move will hit the top line by 2-3%. And hence the downgrade.
On the chart, Class has bounced off its uptrend support line and looks to be in the early stages of forming a short term uptrend. It’s a little too early to call it yet, we’d need to see the stock track above $2.80 to become more confident. But it does look promising. Overall the longer term trend is slightly up. RSI is neutral and MACD is Neutral.
Unconventional View: Class Super’s platform is really in a class of its own. Pardon the pun. You only have to go onto the company website to see the numerous awards it has won. It took all SMSF software awards since 2014 ranging from “BRW Most Innovative company” to “SMSF Awards Winner”. Class is the leading provider of cloud-based administration software for SMSFs and has a 25% market share of all SMSFs. More than 140,000 portfolios are administered using Class software by more than 1,100 accounting and administration practices and these numbers are growing exponentially. Its last set of results were more than impressive. Revenue was up 45% and underlying profit beat expectations rising 71%. The reason Class has done so well, is because it taps into an area that is growing rapidly. Australians love to have control and be in charge of their own Self Managed Super Fund. But compliance and accounting is hard to administer on your own. That’s where Class steps in. Class is a SMSF accounting administration tool that draws data from investment platforms such as Hub24, Netwealth, IRESS and Praemium. It also has Class Portfolio that is used for administering investments outside of superannuation. The platform is cloud based which means, customers can access live data online and from anywhere. It also means lower costs. The platform is highly popular among independent financial planners and is winning over accounting firms. Last week KPMG entered a partnership agreement with Class to better leverage new potential for growth in its SMSF administration business. It’s a big win for Class which now has a 50% market share in the cloud-based SMSF software sector.
Here are a few highlights that we thought were rather impressive from the company’s recent investor day. Between 30 September 2017 and the close of business 20 November 2017:
- Class Super has grown by an additional 3,321 accounts, currently 150,243 SMSFs
- Class Portfolio has grown by an additional 243 accounts, currently 3,874 portfolios
- We had our best October ever, a +35% uplift in new accounts compared with October last year
- Total Class customers increased by 45 subscribers, currently 1,249
- Net new accounts added for the quarter to date are +50% up on this time last year
On the downside, AMP has voiced its intention to terminate its contract. It has SuperConcepts, which makes up 6% of Class revenues. AMP has consolidated to its four licences into one, which does suggest the wealth manager will terminate soon and transfer to a competing platform. Despite the rather large loss, most brokers are still optimistic that Class will quickly fill the gap through new clients. In-fact UBS expects 23,000 additions for FY18 and 29,000pa for FY19-21. Market share rising to 45.5% by FY27. Its plan to penetrate the financial planning industry will only expand its reach even further and grow its bottom line.
Shares in CL1 have come off their $3.56 highs following their AGM and Quarterly update. Whilst the company increased accounts by 6,232 to 146,922 and capture a 25% of the estimated 598,000 SMSFs, it may have been a little the markets high expectations, especially running on a PE of 44x. Its Class Portfolio was also up 21% to 3,631 accounts. All in all, we think Class is a quality stock that that is in its infancy and has significant upside potential. Customers are usually quick sticky and it retains a 99.4% retention rate. Its competitors are Xero (XRO), GBST (GBT), Reckon Group (RKN) and MYOB (MYO). The recent fall from $3.56 to $2.69 has put CL1 in an attractive position. It’s taken some of the heat out of the stock and brought it back to a more respectable valuation. As long as the stock stays above this support line, we think its good value buying here. But you will need to be patient as there is no momentum in the stock, so it may trade sideways for some time.